For Raj Kumar Gupta, 35, a company secretary in Jagson Airlines, a private firm, a home loan meant paying installments well beyond retirement.

Gupta borrowed Rs 7 lakh from ICICI Bank at a floating rate of 7.5 per cent for a flat in Sahibabad, Shalimar Garden, in 2004. He was made to believe that the interest rate on his loan would move in only one direction: down. He paid a monthly installment of Rs 5,700, almost half his income of Rs 12,000 four years ago.

Gupta’s loan had a 20-year tenure and he was happy that before retirement he would really own the house, having fully paid off his loan. But he was in for a shock. The floating rate had gone up, on an average by about 50 basis points every six months, and in two-and-a-half years his home loan rate had rocketed to over 10 per cent.

“I had paid only Rs 40,000 of the principal. And four times this, or Rs 1.6 lakh in interest, in the last two-and-a-half years,” he says. What really gave him a sinking feeling was the doubling of the home loan tenure from 20 to 40 years. “I felt cheated,” says Gupta, the sole earning member of a family of four, including wife and two children.

A good Samaritan explained to him the minutiae of a floating rate interest — where the interest rate on the home loan increases with every increase in the cost of funds of banks — and advised him to switch to a fixed rate. When the outlook on interest rates point to a uptick, it makes sense to borrow on a fixed rate. Gupta did his homework well and in September 2006, not only did he switch to a fixed rate, but also shifted from ICICI Bank to the state-owned Central Bank of India. The switchover, however, came at a cost.

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