How to choose the best Home Loan Interest Rates

Finding the Best Home Loan Interest Rates is Easy!!! Check Now

A loan helps us to fulfil our dreams. And when the aim is as significant as buying a home, a housing loan is the best option.

However, considering the hefty amount and the long tenure involved, a housing loan is one of the most significant liabilities.

Moreover, a person who wants to take a housing loan often faces a dilemma: what type of interest rate will benefit me the most?

Typically, there’s no “one-size-fits-all” answer to this. Two types of interest rates on housing loans, namely fixed interest rates and floating interest rates, exist.

A borrower must analyses the pros and cons of a particular interest rate plan to match their needs and finally decide.

The current home loan interest rates signify that reputed lending institutions are now aggressive in deploying idle funds to borrowers.

Fixed Rate of Interest

Housing loans offered at a fixed rate of interest ensure that the borrower only has to repay through fixed equal monthly instalments during the whole loan tenure.

Market fluctuations don’t affect fixed-rate housing loans, i.e., the interest rate remains equivalent regardless of the market conditions.

Most of the time, monthly payments made during the initial stages of repayment are employed to recover the interest. And the principal is retrieved from the monthly payments made during the later stages of the repayment of the loan.

Advantages

  • Fixed interest rates remain constant and do not suffer from market fluctuations.
  • Due to their predictable nature, fixed interest rates help in budgeting and maintaining the repayment schedule.

Disadvantages

  • They are usually around 1% to 2.5% above floating interest rates.
  • As they continue to remain fixed, you’ll get to pay an equivalent rate of interest even if rates reduce due to market movements. At times, foreclosure is subject to penalty.

If you’re willing to possess a hard and fast monthly repayment schedule, a housing loan might be the most suitable option.

Floating Rate of Interest

As the name suggests, the floating rate of interest fluctuates with some reference benchmarks like rate environment in the market. Therefore, any change in interest rates in the economy, ups or downs, the rate you pay will move up or down accordingly.

Advantages

  • Floating interest rates are lower compared to fixed interest rates.
  • Suppose you expect interest rates to drop over sometime; choosing a loan with a floating rate results in the interest rate on your loan falling too, which in return reduces the cost of the loan. Unlike a fixed loan, there is no prepayment penalty for a floating housing loan.

Disadvantages

  • Due to the constant change in interest rates, floating interest rates offer little to no predictability. It becomes unclear exactly how much you pay as interest.

If you are competent enough to understand the movements in the real estate market and market-rate movements, then a floating rate of interest is an ideal option.

Conclusion

The recent repo rate cut by the RBI has brought housing loan interest to a record low mark.

Current home loan interest rates have come down to as low as 8%. Most financial institutions are now offering their lowest rate at around 8% per annum—an excellent opportunity for aspiring home buyers to enjoy paying lower EMIs.

Disclaimer:  The above-mentioned story is for information purpose only and the viewers are requested to look forward accordingly as Business Upturn does not take any responsibility of the losses that may occur in further activities of traders and/or buyers.
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