To soothe the borrowers' frayed nerves, banks are once again rolling out short-term fixed rate home loans. Credit counselling centres, whose mandate is to help clients find realistic solutions to their debt problems and agree on achievable repayments, are the flavour of the season.

So what's on offer? India Infoline Investment Services, a home finance provider, has announced a scheme, Mortgage SteadiLoan, where home loan rates are fixed for two years, starting at 10.99%. ICICI Bank is offering one- and two-year fixed rate home loans at 10.5-11.75%, depending on the loan amount. According to ICICI Bank, the fixed interest rates will shield customers from frequent changes in home loan interest rates and protect them from rising rates over the next couple of years, depending on the product chosen by the customer.

Make a calculated decision

"It makes no sense if you have to pay a premium on what you are getting at the floating rate," he adds. What it boils down to is that you must calculate the rate differential between the prevalent floating rate and the fixed rate before opting for the offer.

In the case of the 10.5% offer on one-year loans of less than Rs 25 lakh from ICICI Bank (see Fixed and floating rates), the math works out in customer's favour as the floating rate for the same loan amount is 10.25%. In contrast, the offer of 11% fixed rate for a loan between Rs 25 lakh and Rs 75 lakh doesn't make sense as you may pay a higher interest rate than the market rate.

Similarly, the IIFL offer of almost 11% comes at a premium for two years. It is more of a guarantee to the lender than assurance to the borrower, according to Roongta, who says that though rates are not likely to drop in the coming 12 months, they may decline over two years.

There are many, like Vipul Patel, director at mortgage consultancy Home Loan Advisors, who believe that floating rate loans are actually safer. "From the consumer's point of view, a variable rate works out better as the rates may go up once or twice in the future. For a person with a one-year perspective, there is an upward bias of 100 basis points (1%). However, there is a downward movement expectation of 200-300 bps over the next 12-24 months," says Patel.

In a similar vein, a senior public sector bank official, says, "We don't expect rates to go up much from here. We want our measures to be customer-centric, not just business-centric. From a customer's perspective, fixed rate loans at this point in time are not favourable."

The way out

The bottom line: if you must fix the home loan rates, do it for just a year. Before signing on the dotted line, make sure that you ask your bank about the EMI and interest rate after the fixed rate tenure ends. More often than not, when the tenure is over, the interest rate becomes floating and is linked to the bank's base rate, with a margin tacked on. Calculate Ypur EMI's with Home Loan EMI Calculator