One of the biggest goals in life, for many, is to buy a home. It is a joyous occasion to finalize a dream home. Obviously, like most people, you would be contacting the banks. Or else, you by this time will be struggling with multiple sources of information regarding Housing Loans. Regardless of the banks you have chosen, property identified, and other features, you need to first focus on the rate of interest the banks offer.
The Home Loan Interest Rate decides plenty of things. For instance, it not affects the amount you pay each month; your creditworthiness is also affected. When you pay higher interest, it escalates your monthly expenses; and if you are going to go for another loan shortly, this interest rate will affect eligibility for future loans. This is why many people recommend opting for the floating interest rate. But does that suit everyone?
When you choose the right interest mode option, you will be able to get the best home loan, best personal loan, or business loan. Here is a brief description of the floating and fixed rate of loans, and which is better for you.
It is easy to switch to a floating or fixed interest rate mode. However, there is a small fee involved. So, if you feel you need to choose the other mode of interest rate, and worried, don’t fret and speak to your bank. Let’s get into the details now:
A fixed rate of interest:
The rate of interest is constant all through tenure. The CIBIL Score Plays an Important Role in Home Loan Interest Rates. A few banks let you review the interest rates and change it in a period of 3 to 10 years. When you opt for the fixed interest rate, then you know what the repayments are throughout the tenure. This means you will be able to predict your finances, keeping your EMI in mind. The loan tenure is clearly defined, and the EMIs remain the same. This, lets one get the confidence and plan the finances for the year with ease.
The floating rate of interest, however, is lower than the fixed rates in certain cases. If you want to make the right choice, assess the situation, and you will be able to find the right option to meet the specific needs.
So why should you go for the fixed rate?
1. You know what you should pay every month. The change in interest rate is confusing, and as the fixed rate is constant, there are no chances of underpaying or paying more than you ought to. In fact, you need to keep the EMI ready in advance. In case of floating rate, your EMI will change with alteration in bank’s benchmark rate, and you may miss the full payment on occasions which can damage your credit score.
2. The fixed interest rate is not more than 30% of the take-home income. Thus, you will be comfortable in making the EMI payment in all certainty.
3. You can choose to stay with a lower interest rate. The interest rates of Home Loans keep fluctuating. So, if you see it has come down recently, lock it immediately. For instance, it is more than 9.5% throughout the year and has come down to 9% recently. It is time for you to act and lock with a fixed rate. So, even if the rate of interest goes higher, you need not worry in the future.
Having said these, do not jump into conclusion that the floating interest rate is not advantageous. There are its own benefits. Get to know about the floating interest rate and its pros below.
This is often known as the adjustable rate of interest. It has a benchmark rate of the lending involved. When the market rate undergoes any change, the rate of interest also changes to meet it. The interest rate is reset in a regular interval; that can be changed for every quarter or half year. It depends on the bank and the individual customer. A few banks reset the interest rate on the loan anniversary. Do not worry that you would need to pay higher EMIs if the rate of interest goes up. Most of the times, the bank decides to increase the loan tenure. This means the loan tenure would go up to 20 years from 15 years when the rate of interest increases. When the interest rates go down, the tenure can go down to 12 or 13 years. This is a better idea because the change in EMI can impact your cash flow, especially when done often.
When is it right to choose the floating rate of interest?
1. Do you think the interest rate in the market will go down? In that case, grab the opportunity to choose the floating interest rate. Your loan cost will go down in such a scenario.
2. If you do not know about the interest rates much and would like to go with the market scenario, again the floating rate of interest can help you.
3. It helps you save money. The floating rates help bring down the expenditure on loan.
What is best for you?
After reading so much, it is quite natural that you will be confused with questions of choosing between fixed and floating rate options. Which is the Best Home Loan for you?
To find the best one, first check which is suitable for you. When you have other obligations, try with the fixed rate of interest that lets you plan with ease and confidence. When you have done with other loans, which would be not more than 5 years often, move to the floating rates.
When there is the option to switch between both, you will see that there is not much confusion in making a choice. Only a nominal fee is involved, and you will not be burdened with it. It is your current life situation that would decide the right type of interest mode for you. Floating rate offers flexibility, and flat type offers the confidence of financial planning owing to the predictability.