
The decision of buying a house can impact your lifestyle for years or even decades. While making such a crucial decision, you will have to deliberate upon a lot of aspects. Once the decision is made, the choice of the property that suits your requirement is the first step. Then comes the funding. The investment is so huge that not all of us can afford to source it with our savings. With the many options available in the market, a home loan will be the perfect funding source.
If you have decided to avail of a home loan you are on the right track, as Axis Bank Home Loan has excellent features that will benefit your decision. The next step will be choosing the rate of interest. There are two types of interest — a fixed rate of interest and a floating rate of interest. Since interest rates have an impact on your financials, you should make a wise decision on that.
These pointers here will help you to make the right decision. Take a look:
Fixed-Rate and its Benefits
A fixed-rate of interest is fixed when availing of the home loan and does not undergo frequent changes. The rate, however, will be reset in intervals of 2, 3, 5 and 10 years and varies with the lender to lender. The lender will have the right to reset the interest at any point in time as per the terms and conditions of the home loan agreement.
Home Loan Interest Rates are affordable, and the floating rate ranges between 6.90% p.a.to 8.55% p.a.depending on the amount and employment. At the same time, Axis Bank Home Loan Fixed Rate is 12% for all amounts and both salaried and non-salaried categories. The floating rate undergoes frequent changes, whereas the fixed rate of Axis Home Loan remains unaltered until the loan’s maturity.
If you are a meticulous planner regarding finances and does not prefer frequent disruptions in your budget, then a fixed rate is the best option for you. You will be sure of the EMI outgo and can plan accordingly.
Fixed Rates are priced higher than the floating rate. In the case of Axis Home Loan Interest Rates, there is a difference of almost 3.45% to 5.1% depending on the loan amount. There is a considerable difference that impacts the interest outgo substantially. On seeing this vast difference, you may be inclined to go for the floating rate.
You should be opting for a fixed rate under the following circumstance
- If the current pattern of home loan interest fluctuations predicts a further spike, then you would like to have your home loan fixed at the present rate.
- If your income can accommodate the EMI for years to come, considering the emergencies that might crop in the future. The EMI should ideally not exceed 25% to 30% of your income.
- If the current rates are much lower than the earlier rates.
Pre-payment in case of Fixed Rate Interest Home Loans
Pre-payment and part pre-payment charges were a part of other home loan charges till RBI put a ban on the collection of penalties for making periodical payments to the home loan in addition to the regular EMI or close the home loan account before maturity. But this benefit was extended only to borrowers who opted for a floating rate of interest. A percentage of the outstanding loan amount for pre-closure of the loan and a percentage of the pre-paid amount in the case of part-prepayment is collected as a penalty for borrowers who have opted for a fixed rate of interest.
The pre-payment penalty for Axis Home Loans availed at a fixed rate is 2% of the amount pre-paid. However, Axis Home Loan Interest rates permitted for Shubh Arambh, Fast Forward and Empower Home Loans Schemes will be only floating rate.
Floating Rate and its Benefits
Floating Rates are linked to the lender’s benchmark rate that fluctuates as per the market rate. Whenever there is a change in the benchmark rate, the floating rate will also undergo a change. If there is an escalation, the interest rate will be higher, and if there is a descend, the interest rate will be lower.
Such fluctuations happen periodically. If there is a change in the market rate, the interest will be reset to higher or lower as the trend may be. Accordingly, the tenure of the loan also will change. Alternately, you can opt for a change in EMI by keeping the tenure constant. This again depends on your financial profile.
Axis Home Loan floating rate ranges between 6.90% to 8.55% p.a.depending on the loan amount and the employment.
You should be opting for a floating rate if:
- You foresee a consistent decrease in the interest rate. You can opt for a floating rate and get the advantage of saving on the interest cost.
- You are not sure about the pattern of the interest rate changes.
- At the time of availing of the loan, if you are working on saving the interest cost, then the floating rate is the right choice. Floating rates are typically priced lesser than the fixed rate.
Conclusion
Even after reviewing the pros and cons, if you are still unsure what home loan to choose, you can opt for a combined rate, i.e., partly fixed and partly floating. This is ideal if you have other EMIs to pay along with Axis Bank Home Loan EMI. You would have planned your finances to meet the existing debt obligations, and the home loan EMI has come as an addition. Subsequently, after the other loans are cleared, your cash flow would improve, and you can afford a higher rate. You can opt for a floating rate for the first few years and then for a fixed rate for the remaining tenure in such a scenario.
The other option would be to switch over from Axis Home Loan Interest Rates (Fixed) to (Floating) at any point in time for a nominal fee.