Selecting Which Type of Interest Rate to Use - Fixed Or Variable

The natural question to ask after deciding on taking up a housing loan is which of the two interest rates, fixed and floating, is more ideal. For the layman, this might be a hard decision to make so we rely on the information available out there. Normally, when the media splashes reports on banks raising home loan interest rates in and their impact on monthly installments, you may take for granted that it is better to opt for fixed housing loan rates. In fact, your banker may also suggest you to go for the same.

Many of us mistakenly assume that once you select fixed rate plan for yourself the rate of interest will continue unaltered for the entire period you have fixed the interest rate, but in reality, this is not always the case.

Here we take a look at the fineprints of a fixed rate loan so that you can make an informed decision over the subject.

Take note that in a housing loan contract, you may find a statement similar to this:

"Provided further that from time to time, the bank may in its sole discretion alter 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."

This is called Force Majeure Clause that enables the lender to undertake appropriate alterations in the interest rates on home loans they approve to their borrowers.

Hence, it is important to read the small print of your home loan document. Also take note that fixed rate packages may only be fixed for part of the home loan tenure. For example, in Singapore, home loans are only fixed for one to five years, after which it becomes a variable rate loan.

So remember to look at refinancing every couple of years so that you do not pay too much. If you select a good home loan company you can save a lot of money over the life of your mortgage and in almost all cases the consultation cost is free.

Learn more about a premier housing loan advisory firm, providing housing loans with free mortgage broking at [http://www.myhousingloan.com.sg].