Do you benefit from a floating loan?

I had opted for a variable interest rate. Since disbursal in 2003, I have been charged interest at 9% per annum whereas interest rates on other loans of other players have fallen.

Upon inquiry, I was told that the interest rate reduction was not available to my loan in view of 'certain criteria'. The rate was then revised to 9.5% from May 2005.

- V P Guru

If you read your home loan agreement carefully, you will find that all taxes and duties are to your account.

Thus, the bank is justified in charging service tax on the foreclosure (pre-payment) charges.

As far as variable rates go, the bane of Indian home loan consumers is that the variation in rates is not linked to any verifiable external index but to the bank's internal rate.

Sometimes, it is not even linked to an internal rate as the agreement might contain a vague clause saying the interest rate is X% pa on a variable basis with no basis mentioned for the variation.

Hence, some banks can and do manipulate to deny the benefit of falling interest rates to existing consumers. It goes without saying the bank will increase the interest rates without delay if there is a reason to do so.

I am afraid there is very little that you can do about this; the bank is impregnable based on the home loan agreement that you have signed.

This is an area that is clearly crying out for regulatory attention and reforms.

• Problems with your home loans?

I took housing loan in 2001 for which I am paying a steep rate of interest. I would like another bank to take over my loan.

Some people have discouraged me from doing so stating that I will be at loss since I paid more interest during the initial period. Is that so?

- Vijaya Ravindra

I have not understood your question very clearly.

The interest portion of the Equated Monthly Installment is bound to be high at the initial years of repayment.

As long as you switch to a bank that is offering a lower rate of interest you will benefit.

Please take into account the prepayment charges payable to the existing lender and the processing fee, if any, payable to the new lender.

This will help you work out the benefits from the switchover.

• Want to switch your home loan?

I took a home loan from a commercial bank and switched over to a nationalised bank. The original bank is charging an amount towards the foreclosure of the home loan.

Do I get the benefit of the foreclosure charges either under Section 24 or Section 80C?

- Piyush Shah

Let me quote from Section 2(28A): ''Interest' is defined as 'Interest payable in any manner in respect of any moneys borrowed or debt incurred (including …) and includes any service fees or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.'

I feel foreclosure charges can thus be classified as other charges payable with respect to the home loan. It can hence be classified as interest and should be deductible under Section 24.