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Reality of the Fixed Home Loan interest rate

This particular article appeared in September 2007 on Indian general as well as specific websites FAQ and informative sites. The article aims to discuss and clarify the gist and intricacies about a fixed interest rate in home loans. Does it benefit the consumer in reality or is it merely designed to impress the consumer to pay more? The article aims to demystify the nature of fixed interest rate housing loan transaction for you so that you could make an informed decision over the matter.

» All the banks include the reset clause on fixed interest rate in their home purchase loan    agreement papers. So if you had taken the loan @ 10.5 per cent for 15 years it does not mean    that the same rate will be applicable all across the period.
» India's largest public sector bank State Bank of India (SBI) has introduced a clause as per which it    has right to revise the fixed rate home loan after two years. Similarly, Canara Bank and    Corporation Bank also have similar provisions to revise the rates after 5-years of disbursing the    loan.
» Private sector banks and Non Banking Financial Corporations (NBFCs) are also following the same    policies and the rates too are revised from time to time.

Force Majeure Clause --

Force Majeure Clause that enables the lender to undertake appropriate modifications in the interest rates on home loans they sanction to their borrowers. Generally, the clause occupies a primary position in all loan agreement documents and is closely linked to interest rates. The clause reads in this manner - "Provided further that from time to time, the bank may in its sole discretion alters 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.

Usually home loan articles are related to one another and follow a sequential format. This means that you cannot understand an article on the EMI schedule and the rising interest rate trend if you fail to read articles on the types of interest rates in India and the connection between the trend of the Indian economy and inflation to rising or falling home loan interest rates.