Don't fall for expensive fixed rate loan schemes

Axis Bank has gone one step further: it now offers fixed interest of 11.75% for the entire 20-year loan tenure. In all the cases, the partial or full security of fixed rates comes at a price - the interest rates are higher than the regular floating rate loan offered by the same lender.

A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain." If the bankers are rushing to offer you the umbrella (of fixed interest rates) you can be sure that it has either already stopped raining or will soon do so.

So do you really need the umbrella? Well if you are the kind of person who cannot be bothered to look up every once in a while to see if it is likely to start raining and take protective action accordingly, then it may not be a bad idea to take that umbrella today even if it is fairly expensive.

'Interest rates are highest level , inflation is still high, interest rates may go up further or may come down.
Economists just cannot seem to make up their minds on the immediate direction of interest rates.

Whilst one can hedge about the immediate outlook on interest rates (the tone of Reserve Bank of India, or RBI, is still ready on increasing rates unless inflation comes under control) there is more or less agreement on the fact that we are close to the peak of this interest rate cycle if not already there.

One big indicator of this agreement in thinking is the rush by banks and housing finance companies to offer dual rate home loans where interest rates remain fixed for a period of one to five years and become floating thereafter.

But if you can be even a little attentive, then you can get protection when it is needed rather than start paying for unwanted protection from today.

However, if protection at any cost is your mantra then you might as well take the more expensive full protection (20-year fixed rate) where the protection is likely to come in handy at least a couple of times over that period rather than a relatively less expensive three year umbrella, where it might not even rain.

A much better idea, of course, is to not buy an expensive protection that is unlikely to be used and instead pay a little attention to what is going on and buy it when it is likely to be more cost effective.

After all, with the deepening and the maturing of our money and debt markets the cost of the umbrella may actually fall in future. So, ideally, be a smart and knowledgeable consumer and don't pay for unwanted protection.

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