Once you decide to avail a mortgage, the immediate thing that tempests your mind is choosing between fixed and floating rate of interest. It is easy to get stuck at this stage if you are not financially trained.

If the media and banks are shouting about increased interest rates you make feel pressed to go and rush into fixing your housing loan rates. Your bank or financial consultant may even suggest this.

Now ideally as it should be, we take for granted that once you select fixed rate plan for yourself the rate of interest will continue unaltered for the entire period you have fixed the interest rate for irrespective of any subsequent increase in the same. But in reality this is not necessarily the case.

Here we demystify the nature of fixed interest rate housing loan transaction for you so that you can make an knowledgeable decision over the subject.

* Check the small print of a loan. The bank has the right to serve you 30 or 60-days notice that it intends to increase its rates.

* The bank’s first-year rates are binding on the bank only for that short period of 1 or 2 months. The 2nd-year home loan rates are not binding at all. Neither are the bank’s 3rd-year loan rates.

* Force Majeure Clause

So, while you read your mortgage agreement papers, you can spot clauses like this:

“Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement.”

This is called Force Majeure Clause that enables the lender to undertake appropriate changes in the interest rates on home loans they approve to their borrowers.

So remember to look at refinancing every couple of years so that you do not pay too much. If you select a good mortgage broker company you can save a lot of money over the life of your mortgage and in almost all cases the consulting cost is free.

Find out more about a premier Housing Loan advisory firm, providing Housing Loans with free mortgage broking.

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