Choosing a home loan has never been tougher. Yes, with all these cheap interest rates floating around, you as a customer are faced with a happy predicament. The banker finally seems to be your friend. He calls you in the morning, day and evening. He remembers your name and offers you the best deal. He meets you and tries to convince you to take a loan to buy your dream home. And in cash if you have only a vague idea of your dream home, the banker friend might also help you decide on the property.

With all these friends to help you, it is advisable that you look at the choices objectively and arm yourself with the requisite information.

Before deciding on a lender and before a lender evaluates you, one of the first things you need to grapple with this the choice between a floating and a fixed rate of interest. Floating rates swing both ways. They could rise in the long term or may fell. The rates that the lenders announce are for new borrowers. While this is grate news for new borrowers, it leaves people who took a floating rate loan a few years ago with a sinking feeling. This is due to a basic flaw in the floating rate loan arrangement on account of the respective benchmarks of interest (read: prime lending rate or PLR) not keeping pace with the fall in interest rates all across.

As a new customer you get the best deal as offers at sub - PLR interest rates. But if you are an existing borrower, you will have to take the initiative to strike a better deal. For example, take someone who took a floating rate loan one year back for 20 years at the rate of 7% and now pays 5%. As against this, a fresh loan for the same tenure is available at 4.5% (Dec' 2004). This is only because the lender didn't cut its PLR (to which the floating interest rate is pegged) to the extent of the fall in rates.

Just imagine, if the home loan market grew by $40,000 million (fresh loans disbursed) in the last fiscal and on an average, the lenders increased their spread by, say, 100 basis due to the above, then the home loan customers stand to lose $400 million! It is a serious consumer rights issue.

Lenders benefit more than the borrowers in the above situation. The anomaly in the contract is that while both the lender and the borrower take equal interest rate risks by entering into a floating rate contract, the rewards are shared unequally by the two.

What this indicates is that the timing and reduction of the PLR applicable for home loan is not all that transparent and a customer might not know when he is suppose to expect the cut. From the analysis of the trend in movement of PLR it is clear that competition has been the main driver in reduction and the timing of reduction for the PLR. The PLR is supposed to be the rate at which a lender offers loans to prime borrowers. Due to increased competition, lenders offer rates well below PLR to new customers. However, the reference point for these loans is still the PLR. So the lenders can offer the best deals to attract new customers but when it comes to changing the rates, it depends upon the change in PLR.The banks have a system of reset dates. These are the dates when existing floating interest loans can be repriced in cash the PLR changes. But the important thing is that if a lender does not reduce its PLR, it is hard to get a reduction in the rate.

You might argue that you could transfer your loan to another lender in case the existing lender dose not reduce rates in the future while it offers lower rates to newer customer. Loan transfer is something that is best avoided. There might be a penalty on it. (The fact the new lender will finance your penalty charges also is no consolation.) So the penalty cancels out the lower interest rate that the new lender might offer you. Also, the existing lender will insist that you clear up the loan first and then only will the property documents be released. And the new lender will refuse to release the loan without the property documents! I am sure bankers fix up a date on which the documents are exchanged and loan is transferred but the loan transfer process takes time and effort. So choose the lender and the loan option sensibly.

Author: Aron Dsouza
Loan Advisor and Real Estate Businessman since 1995.
http://www.RefinanceMortgagesLoans.com/

NOTE: This article can be re-printed and/or published online or offline for free, provided the website, http://www.RefinanceMortgagesLoans.com/, is posted along with it. The article must remain intact without any alteration.

Home Loan - Whether to Choose Fixed or Floating?
Choosing the right kind of interest rate can be extremely baffling while shopping for a home loan. Only a single question comes into mind Should I choose fixed or floating rates of interest?Interest rates on home loans have been fluctuating since th...

Home Equity Loan Info Guide
A very desirable option for those even with poor credit is to secure a Home Equity Loan. It is quite different from other personal loans and is preferred by both borrowers, for its easy availability, as well as by lenders because it is easy for them ...

Mortgage Loan Information - Know The Basics When You Refinance or Purchase a Home
If you are currently looking for a new home, chances are that in all the excitement you wont really give any thought to the type of home loan mortgage you take out, instead going with the first one offered to you. This could be a serious mistake co...

Home Loan: What Is The Essence Of Considering Home Loan Options
Any borrower hunting for a home loan should realize that he/she is under legal obligation to repay. One needs to be prudent in selecting the right online home loan option by either running a search online for home loan option himself or take aid from...

Loan Schemes For A Home
Do you want a home loan? Are you in a kind of fix or confusion regarding building or revamping a home. Take a look at the various kinds of schemes and programs that are available in case you are interested to buy, build, or revamp a house.Most people...

The Benefits of a Fixed Home Equity Loan
Although a home equity loan can be an inexpensive way to borrow money, it's smart to choose one with the best rates and terms. And, in today's market, a fixed-rate home equity loan may be your best choice. That's becauseCurrent Rates Are RisingBy c...

Keep Yourself Together with a Split Home Loan In 3 Simple Steps
When you are selecting a split loan, you can customise the loan and take advantage of the various features that different financial loans have to provide. The features available with this type of debt make it particularly attractive for first time bo...

Fixed Rate Home Equity Loan Vs. Interest Only
Fixed rate home equity loans allow you to borrow more than your homes value with deductible tax advantages, but are harder to qualify for.Home equity loans are the most attractive tool in obtaining the amount you need. A fixed rate home equity loan i...

Fixed Rate Home Equity Loan - Is a Fixed Rate Your Best Option?
Although home equity loans are risky, these loans serve many useful purposes. By tapping into your home's equity, you have the opportunity to access extra money for home improvements, debt consolidation, etc. Furthermore, homeowners may choose betwee...

California Home Equity Loan Facts
If you are on the lookout for a good bank located in California that provides home equity loans, you may want to examine some facts before you decide to go with one.A fixed rate mortgage loan from a reputable California bank can be a valuable choice ...