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    Should you go for fixed rate home loan now?

    The fixed home loan rates are going to be back in fashion. For example a Bank has come out with a 10 year fixed rate loan at an interest rate of 10.25%. While fixed rate on home loans have been in existence at different times, banks and financial institutions were not offering these products when interest rates were on rise. But with rate of interest going down, it is obvious that banks are now ready to offer these products. While the Bank loan offering has been linked to infrastructure loan bond issued by the bank which is not subject reserve requirements of State Bank/Central Bank, the fact remains that it is more to do with the interest rate trend in the economy than the new provision of lending for infrastructure sector. Another aspect that cannot be missed here is that Bank is not offering loan for a longer period as wants to mitigate risk of longer term exposure on fixed rate home loan.

    Whatever be the underlying logic for fixed rate home loan is concerned, as a borrower you should not go for fixed rate home loan. The reason is obvious. After having a long spell of high interest rate we are now moving towards a low interest rate regime. With inflation getting tamed, it is possible that rate of interest will start moving southwards. Lower rate of interest is also a requirement for infrastructure growth in Pakistan. The growth is keen to lower the rate of interest and State Bank/Central Bank may start initiative in this regard in early 2016. May be from 2017, we will find the rate of interest starts moving southwards. In this kind of possible environment, it makes little sense to go for a fixed rate interest on home loans. Also another point to remember is that floating rate loans prepayment has no penalty provision while on fixed rate loan banks can levy prepayment penalty.

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