There are thousands of people out there that dream of buying their own houses. If you are one of them but are worried about the finances required to afford a property purchase, there is always an option to apply for home loan. A home loan will cover up to 80-90% of the property cost and the remaining will have to be covered by you, which is known as the down payment.
Now, before taking this loan, the home loan interest rate is a big topic of discussion between the lender and borrower. This is because this interest rate is instrumental in affecting the monthly instalments of the loan. Now, the interest rate can differ as per each lender’s terms, and you have to choose which one to go for. There are two different types of interest rates, which are fixed and floating interest rates.
To understand which one is more beneficial, take a look at both the rates and how they affect the home loan EMIs:
- Fixed interest rate
A fixed interest rate, as the name suggests, is a rate that does not fluctuate and remains constant irrespective of the changes in market conditions. This home loan rate will remain the same throughout your loan tenure, which makes it easy to calculate the loan’s monthly instalments as there are no changes in the rate. In this case, planning the repayment becomes much easier. Do note that the lenders usually charge a slightly higher amount for fixed interest rates as compared to floating interest rates.
- Floating interest rate
A floating interest rate can keep varying during your home loan’s repayment tenure. By choosing this type of housing loan interest rate, it will be difficult to get an accurate estimate of the monthly instalments of the home loan since the rate can change. If the market rates drop, you will benefit from the situation as the floating rate of your home loan would drop too, ultimately decreasing your home loan. However, if the rate goes up, you will have to bear higher EMIs.
So, which one should you opt for?
If the market rates are low at the time when you apply for a home loan, you can choose to take a fixed interest rate. For instance, at present, some lenders have brought down their home loan rates to as low as 6.55%. In such cases, it is advisable to take advantage of the situation and go for a fixed rate, especially if you are expecting the home loan interest rates to go up in the future. However, if you are confident with the real estate market and are expecting home loan rates to fall in the future, choosing a floating interest rate can be beneficial.
Ultimately, whether you choose a fixed or floating interest rate, it is a personal decision that has to be made after careful consideration of your budget. It is also important to have a proper understanding of the interest rate fluctuations before making a choice between the two.