Tipping Point

Reset clause gives banks and HFCs the power to revise even their fixed-rate home loans

What is the reset clause in a home loan?
 
A reset clause gives banks and housing finance companies (HFCs) the power to revise even their fixed-rate home loans. Most home loan borrowers take floating-rate home loans, which are attractive in a falling rate scenario but can cause hardships when rates are rising. To avoid this, some conservative borrowers opt for a fixed-rate loan, which are typically more expensive than floating rate loans. Usually, it is a good idea to opt for fixed rate home loans when interest rates are close to the bottom, as is the case now.
 

When does reset clause kick in?
 
The reset clause usually states that banks/HFCs can revise the rate of interest at certain intervals, say, after two, five or 10 years, or if prevailing interest rates deviate significantly from the fixed rate. Check the exact circumstances in which the fixed rate can be revised. Opt for a player that offer the fairest terms and conditions.