Home loan seekers had to contend with a far more docile 2004 vis-�-vis the euphoric one they experienced in 2003. After the successive rate cuts witnessed over the last 2-3 years, 2004 saw a reversal in trend.

Interest rates stabilised and moved upwards. Housing finance companies (HFCs) hiked rates by about 50 basis points; rack rates for floating rate loans ranged from 7.50% to 8.00%, while those on fixed rate loans were quoted at 8.00%-8.50%.

Existing floating rate loan holders had to choose between higher EMIs or longer tenures.

The most visible change was perhaps seen in the loan seeker's preference for fixed rate loans. The last few years had seen the emergence of a herd mentality wherein floating rate loans were the default choice.

The upward movement in rates forced loan seekers to evaluate all options available to them and judiciously select the one that suited them the best. The widely prevalent notion that interest rates would move southwards was reversed in 2004.

However it was not all downhill in 2004. On a positive note, recommendations made by various committees for trimming down tax benefits on home loans failed to find any favour with policy makers.

HFCs were also willing to bend backwards for loan seekers with the right profile, i.e. the ones with a sound credit history, employed with large organisations and drawing attractive salaries. Similarly freebies like insurance policies were used to entice big-ticket loan seekers.

Industry practices were put under the scanner as the true nature of 'fixed rate' loans was exposed. Some HFCs countered the situation by offering fixed rate loans with explicit guarantees of 'truly fixed' interest rates, while others continued with their hybrid offerings, i.e. fixed rates for a stipulated period and 'subject to change' thereafter.

For once consumers were forced to study the nuances of their home loan agreements and implications thereof. Coincidentally the major events that took place in the home loans industry in 2004 were broadly in tune with our predictions in December 2003.

What to expect in 2005?

Home loans are operative over longer time periods like 15-20 years and taking a call on interest rates over such tenures would be a difficult proposition.

However what loan seekers must do is, make choices in tune with their risk appetites and profiles. If an unwavering liability is what suits your profile, then fixed rate home loans should be the natural choice.

On the other hand, if you can handle risks and are willing to go the extra mile to benefit from any further fall in interest rates, floating rate home loans will be best suited for you.

Either ways ensure that you have understood the implication of `fixed/floating rates' as defined by HFCs, since this has undergone some change in 2004.

Another important area going forward will be the need to make informed choices. Loan seekers can no longer afford to be oblivious to the niceties in their home loan agreements.

Various clauses in the agreement can have a significant bearing on your liabilities; ensure that you have a thorough understanding of what the agreement entails and that there are no unpleasant surprises.

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