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Should i opt for Fixed Interest Home Loan ?

Fixed Interest Home Loan
Fixed Interest Home Loan

Recently ICICI Bank launched Fixed Interest Home Loan at 10.25% for 10 years. It created buzz and i received multiple queries from my readers whether to opt for Fixed Interest Home Loan at 10.25% for 10 years or not. Sometime back i wrote a post on Truly Fixed Interest Rate Home Loans . Fixed Interest Home Loans cater to specific set of Borrowers who are basically risk averse. Fixed Interest Home Loan product is more suitable during uncertain economic conditions. Broadly speaking interest rate movement is basically a 10 year cycle in which interest rates move from bottom (Trough) to High (Crest) and then to bottom (Trough). ICICI Bank scheme is quite unique in terms of difference between Rate of Interest between Fixed Interest Home Loan and Floating Interest Home Loan. Difference between two is just 0.1% which is lowest till date. Traditionally the differential is atleast 1%-1.5%. Currently PNBHFL and IDBI are also providing 10 year Fixed Interest Home Loans at 10.75% i.e. differential of around 0.5% from Floating Interest Home Loan.

Before we decided whether to opt for long term Fixed Interest Home Loan or not we need to check why ICICI Bank, IDBI Bank and PNBHFL launched Fixed Interest Home Loan fixed for 10 years. ICICI Bank’s 10.25% offer is quite tempting considering floating interest rate is 10.15%. For some Home Loan lenders even floating interest rate is 10.25% or 10.50% i.e. higher than ICICI Bank’s Fixed Interest Home Loan. Lets find out

Easing Price Inflation Concerns

With the stable govt at centre, growth will be key driver to revive economy. Growth will overtake inflation concerns. International crude prices have dropped below $100 a barrel thus easing inflation concerns. Secondly, the drought concerns are now limited to certain pockets of country as monsoon is not that bad as predicted earlier by Met Department. Easing inflation concerns point to Growth driven economy thus lower interest rates.

Reversal of Interest Rate Cycle

In conjuction with easing Price Inflation concerns, aggresive launch of Fixed Interest Home Loan schemes indicates reversal of Interest Rate cycle very soon. Interest Rates will start reverse trend from Crest to Trough. Interest Rates have peaked and now bank will try to lock in as many customers at higher interest rates as they can. Reason being banks borrowed the money at high cost but with reversal of Interest Rate Cycle at some point they need to revise interest rate of existing customers on Floating Interest Rate. By locking some customers to Fixed Interest Home Loan, Bank will hedge its risk/limit loss to some extent.

Fear of Home Loan Transfer

As per RBI mandate, Bank cannot charge pre-payment penalty for Floating Interest Home Loan but this limitation is not there in Fixed Interest Home Loan. Any reversal of interest rate cycle will initiate mass exhodus of existing Home Loan borrowers if bank will not reduce interest rates of Floating Interet Home Loan for existing customers. When interest rates will decline small players will launch aggresive offers to gain market share. Fear of Home Loan Transfer will be critical concern.

Pre-Payment penalty on Fixed Interest Home Loan

For existing customers on Floating Interest Home Loan, the exit barrier is not there because of Zero pre-payment penalty. For Fixed Interest Home Loan customer the exit barrier of pre-payment penalty of 2% of outstanding principal amount is huge in terms of absolute value. Fixed Interest Home Loan customer will think 10 times before Home Loan Transfer whereas Floating Interest Home Loan customer will not give a 2nd thought if he/she gets good deal. By locking customer on Fixed Interest Home Loan, Banks will create exit barrier for customers in case of reversal of Interest Rate cycle.

 Conclusion: You may opt for Fixed Interest Home Loan provided you fulfill following conditions

(a) You are a risk averse borrower

(b) You are not comfortable with financial uncertainity

(c) You are certain that you are not going to prepay Home Loan atleast for next 10 years

(d) You are aware of pros and cons highlighted by me in post Floating vs Fixed Interest Rate Home Loans

Fixed Interest Home Loan scheme for 10 years is not provided by many lenders. Quite interestingly SBI, the leading Home Loan Provider does not offer Fixed Interest Home Loans. All the products of SBI are linked to Floating Interest rate.

Word of Caution: All conditions mentioned in this post are subject to ifs and buts. Any geo-political tension can reverse the entire trend. Geo-political tensions can increase international crude price thus inflation concerns will take driver’s seat. In this case, Interest Rates will increase and Fixed Interest Home Loan might prove to be the best decision of life.

Copyright © Nitin Bhatia. All Rights Reserved.

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nidhi
nidhi
9 years ago

I am thinking of quitting my job and work from home. is there something that you can suggest I can do from home. I have 10 years experience in administrative work but now I want to pursue something different. I have done M.Com but that was long ago.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  nidhi

You can mail me on info@nitinbhatia.in and share areas of expertise & areas of interest. Also mention whether you wish to start something with investment or without much investment. I will definitely share few career options which can be pursued as 2nd career. All the best

satyad
satyad
9 years ago

Thanks for detailed info.

I have a query regarding homeloan. I am planning to take a loan of 30L for 15 years foy buying a flat. i am evaluating two options.

1. SBI max gain – floating (only) – 10.15 now
2. PNB 10 years – truly fixed – 10.5

I have plans to prepay some percent of the loan. whether its SBI or PNB. So based on current circumstances which is better ?

How much max floating interest can SBI go up to (generally based on current data). Please clarify.

Also do you suggest any other alternative to the above two options ?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  satyad

You may opt for SBI Maxgain. As i mentioned in my post, based on current economic scenario interest rates will not increase from existing levels but will start reverse journey shortly.

hahahaha
hahahaha
9 years ago
Reply to  Nitin Bhatia

Thanks for the info.

I have one more doubt. Is having a a co-applicant good/bad if there is no tax benefit.

My wife is a home maker and home loan is solely on my name. Bank says if the co-applicant name is there in sale agreement (flat under const) then they need her id and photo as co-applicant in Home loan forms.

My query is what liabilities and responsibilities a co-applicant will share. In case some thing hapenned to primary applicant in case if he takes insurance for HL on his name.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  hahahaha

I will not suggest co-applicant if tax benefit is not a concern. Co-applicant is like guarantor and shares equal liability and responsibility with borrower to clear bank dues. I will not suggest HLPP or Loan insurance. To avoid any uncertainity, buy online term insurance plan and make your wife as nominee. Please check following post

https://www.nitinbhatia.in/home-loan/7-reasons-why-you-should-not-buy-home-loan-protection-plan/

hahahaha
hahahaha
9 years ago
Reply to  Nitin Bhatia

Thanks for the info. Have read it. will not take any HLPP. Have term insurance.

Just to confirm.
You are suggesting not to add co-applicant in the agreement and while for applying for loan.

Agent from PNB says ‘co-applicant’ is mandatory as per their Norms.

SBI agent says it is not.

Is this mandated by RBI ? or just some banks are asking for it.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  hahahaha

It is not mandatory. PNB is only safeguarding its own interest.

Ashok Kumar
Ashok Kumar
9 years ago

Nitin, once again an immaculate post here. Thanks for that. My question to you is that I am planning to take a home loan and I have two options LICHFL and HDFC. Lic is offering 10.10 fixed for two years thereafter floating. HDFC is offering 10.15 floating. Which according to you will be the best choice and why(if you don’t mind)? I know these HFC’s will increase the interest rate eventually but how often they will do that to get to that current floating rate. And what would be the conversion fee?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Ashok Kumar

In my opinion HDFC between LIC and HDFC. Though i will prefer bank like SBI, ICICI Bank or Axis Bank. Interest rate is changed, if there is change in Base Rate or BPLR / RPLR. Conversion fees vary and you need to check with Bank/HFC.

Sp Singh
Sp Singh
9 years ago

Hello Nitin G, Is this true that karnataka government is going to hike the flat registration charges (current =5.6%) effective from Nov 2014 ?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Sp Singh

These are rumours spread by builders and agents to close property deals and create sense of urgency among buyers. In my knowledge there is no such proposal.

Anwar
Anwar
9 years ago

Dear Nitin, Thank you very much for your informative blogs on home loan. It is helping me very much. I am a central govt employee (ISRO) from trivandrum, trying to construct a house in own property. I need a total loan of approx. 20 lakhs. Govt provides us an HBA of 7 lakhs only. For the rest of the amount, I approached SBI and ICICI branches. The managers of these banks discouraged me regarding HBA and told that they cannot give 13 lakh additional loan as it will be second mortgage. Is it true? But the nearby HDFC bank is very interested in giving the loan as second mortgage. Can I go for HDFC? Some of my friends are telling that, HDFC has some hidden charges and they account for the money deposited only in half year basis. Is it correct? Will there be a huge difference in the total money I pay back? I will be very grateful for your advise.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Anwar

Banks cannot refuse 2nd Mortgage for properties pledged under HBA scheme. Govt allow 2nd Mortgage on property pledged under House Building Advance. Original documents will be retained by Govt. A Tri-party agreement is signed between Govt, Employee and Home Loan Provider for 2nd Mortgage

HDFC Home loan is on monthly rest therefore Principal component is calculated on monthly basis whereas SBI provide daily rest, which help to save additional interest. In my opinion, SBI will be better choice among three. For hidden charges, you may check my following post and clarify with bank / HFC in advance

https://www.nitinbhatia.in/home-loan/15-home-loan-hidden-charges-banks-dont-tell/

Anwar
Anwar
9 years ago
Reply to  Nitin Bhatia

Hi Nitin, Thank you very much for the informed reply. Yesterday, ICICI home loan sales team called me back and told that they are interested to give me loan as second mortgage. They even apologized for bank manager. As SBI is still not interested, which one I should choose? ICICI or HDFC? Also I learned that, HDFC Ltd. is the home loan agency for HDFC bank. But ICICI bank gives home loan directly. Does this makes any difference?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Anwar

In my opinion, ICICI bank will be better choice. HDFC Ltd is HFC (Housing Finance Company)and Interest rate is linked to RPLR whereas ICICI bank’s interest rates is linked to Base Rate of the bank which is more transparent way of fixing interest rates.

Sunil
Sunil
9 years ago

Dear Nitin,
I am Serviceman in Indian Air Force. i took a home loan from LICHFL for 30L for 20 yrs. my initial EMIs for the first two years were on fixed ROI basis and would get converted to floating ROI from 07 Dec 14. should i stick to the new scheme of floating ROI or transfer my loan to a bank like SBI/ICICI.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Sunil

LICHFL does not provide option to reduce ROI by paying conversion fees therefore your ROI will increase sharply when your Home Loan will shift from Fixed to Floating i.e. on 7th Dec. In my personal opinion, you should transfer your Home Loan to SBI.

Vepachedu Sunil Duth
Vepachedu Sunil Duth
9 years ago
Reply to  Nitin Bhatia

Dear Nitin,
Thanks very much for the reply. I had gone through your notes on Home Loan transfer, its quite informative. You are indeed a great help. Thanks

Krishna
Krishna
9 years ago

Hi Nitin,

It has been great to read many posts of you. I have got much information from them. Great Job. Keep doing.
I am Krishna and in the stage of processing a home loan @ ICICI. I was offered for interest rate 10.25 + Insurance and have bagged it now @10.15% floating rate(without insurance) after few days of bargaining. Is this a good sanction?

I had been told about processing fee in the beginning but wasn’t told about charges of Legal scrutiny charges, attorney charges and most importantly MOD charges. Do I really need to pay these charges? I am worried if my Home loan agent is trying to get these amount from me without notice of bank. Please help me on this. Is there any way I can avoid MOD charges?

Thanks in advance,
Krishna

Krishna
Krishna
9 years ago
Reply to  Krishna

Hi Nitin,

Another note I would like to add here is that my home loan provider is ICICI HFC. Is this the only ICICI home loan company? From one of your comments I read that this bank decides interest rate based on base rate but my sanction letter says that it is decided based on IHPLR. Could you please provide some data on this.

Thanks again, Krishna

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Krishna

ICICI HFC is different from ICICI Bank Home Loans. I always suggest to avail Home Loan from ICICI Bank as ROI is linked to base rate. 10.15% floating interest is good deal but with ICICI HFC you need to check that ROI should not be under any teaser or promotional offer for fixed duration.

MOD charges are compulsory and has to be borne by the borrower. You can check my following post on hidden charges

https://www.nitinbhatia.in/home-loan/15-home-loan-hidden-charges-banks-dont-tell/

Krishna
Krishna
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin,

Is this IHPLR is linked to govt’s base rate in some way and can I trust they don’t increase the interest rate as of then they want? (some control with government)

If you don’t mind, Could you please go through my below sanction letter and let me know if there is any thing hidden(Technically, am not clear with Adjustable Interest Rate)

Term of Facility: 240 Months (20 years)

Type of Interest: Floating Rate of Interest

Floating rate of interest: 17.75% per annum or as applicable at the time of disbursement

Adjustable Interest Rate: IHPLR as publicly notified from time to time plus margin of as publicly notified from time to time plus margin of -7.60% = 10.15 p.a. ( 17.75% -7.60%) or as applicable at the time of disbursement.

Rate Of Interest: 10.15% per annum or as applicable at the time of disbursement

Number of Equated Monthly installments (EMIs):240

Amount of each EMI (on Monthly rest):25350/- (Payable monthly)

Fees on Part Prepayment: *NIL on amount prepaid

Fees on Full & Final Prepayment: *A)For loan with fixed rate of interest at the time of prepayment: NIL on amount prepaid and on all amounts tendered by the Borrower towards Prepayment of the Facility during the last one year from the date of final prepayment. B) For loan with floating rate of interest at the time of prepayment: NIL on amount prepaid and on all amounts tendered by the Borrower towards Prepayment of the Facility during the last one year from the date of final prepayment.

This will be a huge help if you can find out any problem in this for me. Am not an expert in this.

Thanks a lot , Nitin

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Krishna

Base Rate / PLR / BPLR is fixed by respective banks or HFC’s depending on cost of funds. These rates are not fixed by Govt or RBI. RBI only control liquidity in system through SLR or Repo rate which in turn impact cost of funds.

For any personalized consultation on chargeable basis, you can call me at +91 94 800 21000 or email me at info@nitinbhatia.in

Krishna
Krishna
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin. Will get in touch with you.

Shivendra Prasad
Shivendra Prasad
9 years ago

Sir, I had taken sought advise from you about more than 1 year back regarding switching off my home loan from LIC to SBI or other nationalized banks. I have taken home loan of Rs. 1200000/- from LIC HFL for 18 years @ 10.70% fixed for 03 years in November, 2011 & My EMI is now Rs. 12,563/-. That time, you had advised me that I should continue with LICHFL. Now what should I do; whether I have to switch off my home loan from LICHFL to any other bank? Please advise.

Nitin Bhatia
Nitin Bhatia
9 years ago

In my opinion, now you should transfer to either SBI, ICICI Bank or Axis Bank.

Shivendra Prasad
Shivendra Prasad
9 years ago
Reply to  Nitin Bhatia

Thanks. But I feel that to take loan from SBI is tedious and lengthy. Can I go for other nationalised banks.

Nitin Bhatia
Nitin Bhatia
9 years ago

Loan from any nationalized bank will be tedious and lengthy..You may check private banks like ICICI Bank or Axis Bank.

Rajitha
Rajitha
9 years ago

Hi Nitin,
It has been great to read your posts. I have few querries.
I am in the process of buying a property. As I am a little short on the down payment part, I am looking for a home loan that will cover my stamp duty and registration charges. We are mostly looking at ICICI Bank, will that help and is it good?
My other query is that, I understand the bank disburses the payment to the building in slabs. Will there be contribution from my end as well during these stages?
Thanks.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Rajitha

ICICI Bank will not include stamp duty and registration charges in Property value. I suggest you to approach HFC like HDFC as they include stamp duty and registration charges in property value.

Bank will start disbursement only after your contribution. For example, if LTV is 80% then your contribution is 20% which you need to pay before bank start disbursement.

Shubham
Shubham
9 years ago

Hi Nitin,

Right now I am having my home loan with PNBFL on 10.75 % interest , I am planning to shift my home loan to ICICI bank on 10.15 % interest rate. As when i have applied for foreclosure letter with PNBFL they also agreed on 10.15 % interest rate, So whether It would be a right decision to transfer my loan to ICICI or not. As ICICI works on base rate but PNBFL works PLR rate.

Also heard bad reviews about ICICI , So whether should i go with ICICI or not.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Shubham

Home loan transfer should be last option. If PNBHFL agree to reduce ROI to 10.15% then in my opinion, you should continue with PNBHFL.

shubham
shubham
9 years ago
Reply to  Nitin Bhatia

Hi Nitin,

Actually PNBFL prviding me an interest rate of 10.15% with Rupees 6700 processing fee. But ICICI is charging Rs. 4000 processing fee for loan transfer.

Also which is better ICICI or PNBFL.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  shubham

ICICI Bank

Yashpal Singh
Yashpal Singh
9 years ago

Hello Nitin Bhatia

Sir, I have taken a home loan of Rs. 10 lac from OBC Bank on 25 jan 2010. The amount of one lac was credited in my account dated 25 jan. 2010 and the rest amount after this date. The due date of first instalment is 30 june 2011. I requested the bank to charge floating rate of interest at the time of documentation. During last 6 months I observed that i am paying more than 12% interest to the bank. The bank is charging PLR(2.75%) and Base Rate 9.29% according to agreement document. Bank has not changed PLR into Base Rate according to RBI instructions. I request to bank to charge base rate from july 2010. The bank is denying to do so. Bank is saying that we will charge 0.5% of the balance principal amount as processing fee and base rate will be charged from today. My query is can bank charge PLR on my home loan should i go to the consumer court or accept the bank’s option.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Yashpal Singh

If you have submitted any written application / request for migration of Home Loan from PLR to Base Rate & bank has not taken any action then you can take bank to consumer court. As per RBI guidelines, bank cannot refuse and charge for this migration of benchmark from PLR to Base Rate.

Yashpal Singh
Yashpal Singh
9 years ago
Reply to  Nitin Bhatia

Thanks for valuable suggestion

lakshman
lakshman
9 years ago

Hi sir
I took housing term loan from SBI recently for 16L in Chennai. I want to switch over to max gain scheme which as per your advice is benefitial to me. But when I asked the sbi homeloan councilor, he mentioned that the minimum loan amount should be 20L for max gain scheme. Is it so? Is there any possibility for me to switchover to max gain scheme? Thanks in advance!

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  lakshman

That’s correct. For SBI Maxgain, Minimum Loan Amount is 20 lakh.

Dimple Thomas
Dimple Thomas
9 years ago

Hello Mr. Bhatia ,

I am being offered home loan by ICICI at same interest rate for both Fixed & floating ie (9.85 ) being a women salaried employee . Kindly advice on should I go for fixed or floating rate scheme when the interest rates are same .More over what should be the ideal period for my loan , EMI not being the constrain ( 15 years or 20 years) .

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Dimple Thomas

I will suggest Floating Interest Home Loan. Secondly, you should opt for min Home Loan Tenure.

Alwin
Alwin
9 years ago

Nitin Sir I want to take a home loan on my wife … she is a salaried employee … . which is better fixed for 10 years or more or select for floating rate and why …

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Alwin

Floating Interest Home Loan as Home Loan Interest is on downward trajectory.

Amith
Amith
8 years ago

Hello Mr. Bhatia,

I have been offered Home loan from Union bank of India with interest
rate of 9.65%p.a Floating & Fixed 11.40%p.a (Fixed for 5 years).I am 25
years old and planning to take 25 lacks for 15 years.

Please suggest me the best

Thanks in advance

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Amith

Floating at 9.65%. Any specific reason for home loan from Union Bank of India. It is advisable to avail home loan from big lenders like SBI, ICICI Bank or Axis Bank.

Amith
Amith
8 years ago
Reply to  Nitin Bhatia

thank you so much for reply…since i personally know the manager i opt for it.

nikhil swarnakar
nikhil swarnakar
8 years ago

Nitin Sir
I am doing a BT to HDFC from LIC.

My current Loan Outstanding is – Rs. 14,30,000/- and Tenure i opted is 10 yrs.

My loan is already sanctioned, disbursement is pending.

HDFC is offering 2 scheme :

Floating @ 9.55%

Fixed For 10 yrs @ 9.75%

Looking at present scenario what do u suggest me ??? – Floating or Fixed For 10 yrs

Will be grt if u can reply ASAP.

Regards
Nikhil

Nitin Bhatia
Nitin Bhatia
8 years ago

I will prefer floating at 9.55%.

Indian_Mind
Indian_Mind
8 years ago

Dear sir,
I had taken home loan from LICHFL at 9.25% for 5 Years.
From Nov 2015 onwards they have change it to floating with 11.45% interest rate.

Is there a way in LICHFL to get reduced rate of interest. I heard some message at your site which mentions LICHFL agreed to reduce % by paying 1140

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Indian_Mind

That is possible but still the new interest rate will higher than current market rate. You may explore option to switch your home loan.

Pankaj Chauhan
Pankaj Chauhan
8 years ago

Hi, i applied for home loan in India Bulls, I gave all the document to the agent along with a cheque. Ideally it should have been from my salary account, but because i didn’t have the cheque at the time, he asked me a cheque from another account. So, i gave it. Next day due to some unavoidable circumstances i had to cancel the plan of taking home loan. So i called him to say return my file and cancel the process. He told me that he has already given the file. But i insisted to return the file. Next i received an message from that india bulls, that ‘your lead id is xxxxxand mr xxxxx is assigned to process your loan faster” I called me that please cancel it, He told that file has been logged in. If you want to log out give me the cheque from your salary account or the bank statement of the current cheque submited. What should i do know? He have photocopies of the document will it be problem?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Pankaj Chauhan

You need not pay. You can submit written application with Indiabulls office to cancel your application and return your documents.

ELDOSE MATHEW
ELDOSE MATHEW
8 years ago

Dear sir,

I need your valuable advice for taking housing loan from PNBHFL, Cochin branch. I have applied for a home loan Rs 20 lakh for period of 20 years. They offered me 2 options. One is fixed rate for 10 year at 9.6%, other is floating rate at 9.55%. Which should I opt..? Fixed or floating..?

One more advice I need regarding the existence of PNBHFL. Is it a public sector organization or private sector..? Can I trust them..?

Iam waiting for your valuable advice and suggestions

Regards
Eldose Mathew from Cochin

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  ELDOSE MATHEW

I will prefer floating interest home loan. PNBHFL is HFC. It is subsidiary of Punjab National Bank and is private sector company under companies act, 1956.

ELDOSE MATHEW
ELDOSE MATHEW
8 years ago

Thank you sir for your valuable replay.

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