Not the time to jump on a fixed home loan rate

Not the time to jump on a fixed home loan rate

Is it time to go for a long-term fixed rate loan? HDFC Ltd seems to think so—it has recently launched a new home loan product, Trufixed, which enables customers to take a loan at a fixed rate for three to 10 years. So does it make sense to go for it? First let’s know the product a bit and run a few numbers to assess whether or not the product is suitable for you.

Product features

Conversion fee/penalty: However, if you want to shift before the ten years are up, then you will have to pay a conversion fee of 1.75%. Also, if you prepay your loan during the fixed rate tenor, there is a prepayment penalty of 2%.

Processing fee: This is the same as that in other home loan products from HDFC—50 basis points (bps).

Interest rate: The fixed rate loan for a minimum tenor of three years comes at a small premium of 25-50 bps over the current floating rate offered by HDFC. For example, if you have a HDFC Trufixed for 18 lakh, your equated monthly instalment (EMI) will increase by roughly 600 compared with the EMI of a floating rate loan from HDFC at current rates for 20 years. But if home loan rates fall by, say, 100 bps and your floating rate EMI adjusts downwards, then your fixed rate EMI would be higher by as much as 1,700 (see graph). If, say, rates move lower during the tenor of the Trufixed loan, it makes sense for you to move to the floating rate.

According to an HDFC Ltd spokesperson, this is a great product for customers who want to lock in their home loan rates and not take any risk on the upside. Moreover, the fixed rates are marginally higher than the floating rates. If rates happen to move substantially lower over time, the customer has the option to convert to floating rate at a nominal fee.

Should you go for it?

Ahmed Raza Khan/Mint

Typically, getting a fixed rate loan when rates are expected to fall doesn’t make sense. Says Kartik Jhaveri, director and founder, Transcend Consulting Pvt. Ltd, “We have already seen a cut in rates this year and more will follow sooner or later. If you are already on a fixed rate loan, this is the time to move to a floating one rather than get a new fixed rate."

For floating rate home loans in the 10-30 lakh bracket, among top 10 banks by advances, State Bank of India offers the best rate of 10.25% per annum, according to data from Apnapaisa.

If you specifically want a fixed rate loan, this product offers competitive rate and you have the option to convert to a floating rate by paying a bit extra.