Home loan interest rates tell about affordability, so paying attention to home loan interest rate types is crucial. While opting for a home loan, you need to consider the type of interest applicable to a home loan.
You can choose either the fixed home loan interest rate or the floating home loan interest rate. It is important to well understand both options before finalizing any option.
The fixed and floating home loan interest rates have their own benefits and drawbacks. Here we look at the benefits of both options and conclude on the best one.
What is a fixed home loan interest rate?
Fixed home loan interest rates are options where the rate does not vary with changes in market forces. This interest rate remains constant throughout the tenure of the loan. You can easily determine the EMI when you opt for the fixed interest rate.
As the rate remains constant, you can easily plan the loan repayment for fixed home loan interest. In fixed home loan interest rates, the lenders will charge you a slightly higher amount than the floating type interest rate in a home loan.
Pros of fixed home loan interest rate
- Fixed home loan interest rate type is good for you if the interest rate at the time of taking is low and you want to use it most.
- For example, if the interest rate was 12% a few years, and currently it falls to 10%, then now is a good time to borrow a home loan with a fixed interest rate.
- However, if you are not comfortable with the case of shifting interest rates, this option will provide you with more stability.
- If you find that the interest rate on a home loan is more than 25-30% of your monthly income after calculating the EMI, then you should opt for this option at this interest rate.
What is a floating home loan interest rate?
A floating home loan interest rate is that type of interest rate that is varied with loan tenor. While opting for this type of interest rate, you should understand that you can not predict EMI with much certainty.
The best thing is that when the rate drops in the case of a floating home loan interest rate, you have to pay a lower EMI. On the other hand, if the rate is high, you have to pay more towards your home loan.
When the floating home loan interest rates are better
If you have good knowledge of the real estate market, then choosing a floating-interest-rate home loan is an ideal option for you. If you predict that the rate of a home loan will fall soon, then the floating interest rate option proves beneficial for you.
The decision between the fixed or floating interest rate is based on your outlook or finances. Remember, those home loan providers have both options to give you choice. It depends on whether you choose the fixed or floating interest rate, according to your requirements.