It is important to select the Bank, whose rate is competitive in the market. Another factor is the terms and conditions of the Loan contract. Care should be taken with respect to the clause pertaining to prepayment or foreclosure. Some Banks charge high penalty for prepayments or foreclosure. The terms and conditions of refinance lender are sometimes negotiable and this provides an opportunity to a person to save even more. Also, an acknowledgement should be obtained from the refinancing bank regarding the list of documents held as mortgage. This will enable us to verify at the time of handing over of documents on full repayment of the loan amount. In addition to the above, the time gap between the final payment or last Equated monthly instalment and the release of documents from the bank should be indicated in the loan agreement.
Regarding the choice of fixed rate of interest or floating rate of interest, it depends on the market trend. At the time of choosing fixed or floating interest rates, the fixed rate is always placed a shade higher to provide a buffer for the lender in the event of rise in base interest rate in the market. To take a decision whether to go in for floating or fixed rate of interest, the simple logic is, if the interest rate is on the downward trend, it is of course wise, to go for the floating rate, but, this rarely happens. It is generally advisable to opt for a fixed rate of interest, as in these days of globalization and liberalization of economies, inflation is inescapable. To control inflation, apex bank will have to raise the basic lending rate to control the money supply in the economy. This will lead to increase in the floating rate of interest. However, floating rate of interest placed down by 2% or so is too tempting an offer, particularly in the light of the dent the monthly instalments are about to create in the income of a borrower. As such, atleast, at the time of shifting loan from one Bank to another with a lower interest rate, opting for the fixed rate is a wise choice. However, it is to be noted that fixed rate of interest does not mean the rate will be fixed for the entire tenure of the loan. The fixed rate will be fixed for a period of 3 years only, after which, this rate is also adjusted in line with the market conditions.