REAL ESTATE NEWS
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Mixed Loans
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Most potential homebuyers are confused whether to opt for a floating or fixed rate. This is mainly because a rising rate regime makes fixed rates look attractive.
However, once you fix it and when the interest rates start falling, then floating begins to look more attractive.
And given the fact that a home loan is generally for 10-20 year period, it is bound to happen that one would get into cycles when the rates would be rising or falling for three-four year periods.
However, if one wishes to take advantage of both floating and fixed, another option is available. This is called a mixed option. Says Amar Pandit, certified financial planner, "Mixed loans are for people who do not want to take a directional call on interest rates but still want to take advantage of some benefit of floating rates (if they were to come down)."
Says Renu Sud Karnad, executive director, HDFC Limited, "This is a good option for people who want to hedge some part of their risk as far as floating rates go. Also, it works well for customers who are also not clear about their future income streams."
The product can be helpful in other ways as well. For instance, if you are expecting some large income to come to you from your other assets or investments then, you could take that part of the loan in the floating and the rest in fixed. That is, say, you have taken a Rs 20 lakh home loan.
However, you have another property that you are planning to sell in the next six months. Also, you are expecting this property to fetch Rs 10 lakh. In this case, you can opt for a fixed plus floating mix (60:40) whereby you take Rs 12 lakh on a floating rate and the rest Rs 8 lakh on a fixed rate.
Accordingly, when you sell the other property and acquire ready cash of Rs 10 lakh, you can prepay a large part of the loan that is on floating, if floating rates have been rising.
Source:Business Standard Joydeep Ghosh, Mumbai
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