Home Selection Criteria

Fixed or floating? A vast majority of the banks have discontinued the exercise of providing home loans with fixed rates, though there are still some of them who provide such loans. Presently the interest rates have taken a back seat, so it’s best to opt for floating rate loans. Other than this, the differential factor between floating and fixed loan rates is 2 percentage points- which majorly depends upon the lender.

Banks charges a certain amount of fees to process home loans. It differs from one bank to another. A few banks charge no fees whereas others may charge 0.3 per cent to one percent of loan amount.

Banks arrive at the base rate after looking at their cost of funds and other factors. Hence, it is varies for every bank. Loans by banks are related to their base rates (below which they cannot lend). The loan rate is usually base rate plus a margin, for example, base rate plus 50 basis points or bps.

The base rate may vary from time to time, but the bank cannot alter the spread or the margin at which it has offered loans to existing customers. For example, if the base rate comes down from 10% to 9.75%, the interest rate for existing customers will fall from 10.5% to 10.25% (considering a spread of 50 bps)

Banks can offer new loans at a higher or lower margin, for example, base rate plus 25 bps. So, for the new customer, the rate will be 10% (base rate at 9.75%), while old customers will continue to pay 10.25%. There are two ways to deal with the problem of differential rates. One, you can transfer the loan to a bank offering a lower rate. This is now easy, as pre-payment penalty on floating rate loans has been abolished. The new bank will charge only a processing fee of 0.5-1% of the outstanding loan. Some banks may even waive the fee