Fixed or floating?

This is the question that bothers every person who plans to take a home loan.

Home loan expert Harsh Roongta has the answer to your question. He also lists the reasons behind his answer in a chat he held with Get Ahead readers on Wednesday, January 3.

For those of you who missed the chat, here is the transcript...

Harsh Roongta says, It's a pleasure to be once again be with you all. I will try and answer as many questions as i can. But please make allowance for my typing skills. So let's get rolling.

kmkul asked, can I get home loan for buying N. A. land..? if yes, can I get all tax benefits as applicable to home loan..?

Harsh Roongta answers, Yes, you can get a plot or land loan. Most leading banks or Housing Finance companies give this kind of loan especially if you are buying from a statutory body or an approved private developer. No tax benefits are available on loan repayments on a loan taken to acquire a bare plot of land.

JIT asked, Hello sir... Home loans are disbursed based on the market value (estimation given by banks appointed valuer) or the registration value of the property.

Harsh Roongta answers, It is the lower of the two. In very selective cases, the bank may give it based on the bank valuer's estimation even when it is higher than the registered value. This recognises the large gulf that exists between actual valuation and declared valuation in markets such as Delhi.

rajeev asked, iam in uae were i can buy house in india

Harsh Roongta answers, If you are an Indian citizen or a person of Indian origin you can buy a house in India and also get a loan to buy that house.

mosquito asked, I wanted to know if it is possible to take some benefit from pre-emi paid to the bank.?

Harsh Roongta answers, No tax benefits are available for a property that has remained under construction during the year. Registration of the property has no relevance for this purpose.

chetan asked, Hi, My uncle lives in Saudi,he is a doctor by profession.He has a site in HSR Layout,his wife is in Bangalore along with 3 daughters.My uncle wants to construct commercial comples(3 floors)but as he has NRI A/c here,is he eligible for loan,if so to what extent.Will he be taxed?

Harsh Roongta answers, Assuming your uncle is an Indian citizen, he will be eligible to get a loan for building a commercial complex. Obviously, any income from such a development will be taxed in India at the normal rates.

Manish asked, Do you think, interest rates coming down ever ?

Harsh Roongta answers, Like any other rates interst rates move in cycles. We have witnessed a downward cycle from 2002 till first quarter of 2004 and they have been moving up since then. Surely they will move down (and up again) in the future as history has shown.

satishcmishra asked, I am in singapore on employement pass since last 3 months. I want a home loan to buy a property in NCR. but I residence is in a village. I don't have urban residence proof. Will I be eligible for a home-loan.

Harsh Roongta answers, You should be able to get a loan as long as the bank is satisfied about your earning prospects (I am assuming you have been working for at least two years now and that only the Singapore stint has been for three months) and the property papers.

pepe asked, good afternoon Sir,should i opt for a fixed loan or a floating rate loan at this stage and can you give me the figures for the same and the banks which can give that.

Harsh Roongta answers, This is one question that bothers all buyers. Fixed gives a sense of security, while you wonder am I paying too much all the time. Our recommendation on this million dollar question is given below.

Firstly, this is not a one time decision and needs to be reviewed periodically.

Secondly, understand what exactly 'Fixed rate' and 'Floating rate' mean before you take a decision.

Fixed Interest Rate loans: These loans are normally priced higher than a variable rate loan for a similar tenure. That is, in the present market scenario, while you would be able to get a floating rate loan for 20 years at 9.5 per cent interest rate, the fixed rate would be somewhere around 10.5 to 11 per cent.

The other option is variable/floating rate loans. This kind of loan is also called 'adjustable rate' home loans. Here, the interest rate is linked to a benchmark rate. Some banks use their 'prime lending rate' (PLR) as the benchmark rate. Some banks have a specific benchmark rate that they use for home loan purposes. Typically, the interest rate applicable to your loan tends to be a certain percentage below this benchmark rate. Ideally the benchmark rate should vary exactly as per the market conditions (though it rarely does -- it is quick to go up but rarely shows the same alacrity while going down).

Apnaloan.com's recommendation is to go in for a transparent floating rate in today's context (this answer is given in January 2007).

Part II: Has your fixed home loan rate been increased?
Part III: Can I get a tax benefit on HRA and home loan?
Part IV: Don't have enough money for downpayment?
Part V: Struggling with two EMI payments?

Harsh Roongta is the CEO of apnaloan.com, a site that help people get the most competitive loans. He is also the co-author of a popular guide to home loans, Complete Home Loan Guide.