Should interest rate only be considered in choosing a home loan?
By Joseph Samson
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Rising interest rates have been one of the biggest concerns worrying the borrower in present times. Continuous hike in policy rates by Reserve Bank of India and corresponding rise in interest rates of loans has been showering its adversity especially on the home loan borrower for whom the repayment tenor is already large and rise in equated monthly installments (EMIs) add up to the crunch.

But is interest rate the only factor guarding the selection of a home loan? Not necessarily so. In this scenario when the borrower feels fragile and finds himself succumbing under market pressure, lenders try to allure him by offering attractive loan rates which seem to be providing a cover against market fluctuations.

ICICI Bank and HDFC Ltd. recently came with fixed-cum-floating rate home loan schemes. While ICICI Bank's scheme offered fixed rate loans for the 1st or 2nd year followed by floating rate thereafter, HDFC's scheme had an increased fixed tenor of either 3 years or 5 years. Interest rates being offered by both institutions have marginal difference.

Similarly State Bank of India declared to continue with a 25bps concession on home loan rates till the end of this year and private sector lender Axis Bank came up with a fixed rate loan scheme for the entire tenor of the loan without any floating component attached to it.

Thus the choices offered by lenders appear very much similar thereby making it difficult to make a selection for the most appropriate lender. The borrower thus has to look into some other factors too before making a decision.

Lending history of the financial institution: By lending history of the bank/housing finance company (HFC) it is meant that the borrower is advised to check up the lending tendency of the bank, that is how the bank has reacted to policy rate changes in the past. PLR or prime lending rate of banks has a direct dependency on policy rates (repo and reverse repo).

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