When the home loan rates fell to record lows in 2004, it was great news for all those who had opted for floating rate-linked mortgages. The drop in interest rates brought down the loan tenure for many existing borrowers, while for new buyers, the equated monthly installments (EMIs) turned very affordable.
But that was then. In the past two years, all such borrowers have seen the average floating rate on home loan rise more than 5 percentage points, putting unexpected stress on their finances.
But for those who resisted the lure of falling floating rates at that time, the decision to go for a fixed rate and fixed tenure loan has turned out to be rewarding experience.
Vaibhav Pathak, therefore, is not a worried man. The 31-year-old software engineer at a multinational company was offered a floating rate of 6.5 per cent, but he chose to go for a fixed rate that was one percentage point higher. He borrowed Rs 15 lakh from ICICI Bank for the two-bedroom flat in Noida, near Delhi.
As Pathak hears more stories of friends and colleagues struggling with rising EMIs, he can’t stop patting his own back for the decision he took four years ago. “I simply locked myself at the low interest rate for the long term, but never thought that my decision would turn out so fruitful,” he said.
Had Pathak opted for a floating rate loan, he would have seen his tenure going up to 25 years along, with at least a Rs 4,000 increase in his monthly payout. “I find myself lucky to have taken the right decision.”
The old cliché is only too apt here: the owner’s pride is indeed the neighbour’s envy.