MONEY MATTERS

Home loans

With the current economic downturn, home prices have come down. So this is the time to buy a house. But before buying a house there are some facts to learn about home loans.

Combination loan

Home loans don’t have to be fixed or floating – the two can be combined. In this the amount you borrow is split into two parts: one with a fixed rate of interest; the other floating. The fixed rate portion helps you tide over interest rate risk. And if interest rates fall, the floating rate goes down too, and you save. Moreover, the floating portion is offered at a lower interest rate.

Insurance cover

Home loans can be insured, so that the borrower’s dependents are saved a lot of trouble if tragedy strikes. The insurance cover will run throughout the tenure of the loan, and if the borrower dies during that period, the insurance company must pay the rest of the loan.

Switch the loan

In order to save money, you can switch loans to a reduced interest rate, if interest rates go down by a few percentages. This is much like taking a new loan after closing your old one. It could mean paying a small fee, but you will save. Switching could also involve changing from a fixed to a floating rate, or vice versa. Study current interest rates at least twice a year and consider if switching makes sense.

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