Buying a house is one of the most important financial decisions of your life. It involves a series of crucial decisions, right from planning your savings, choosing the right house, and picking the best financing option. While you may get several home loan options from prospective lenders, it is essential to weigh the long-term impact of each alternative.
Banks usually charge interest on such loans in two different ways – fixed rate and floating rate. Before you apply for home loan, here’s what you need to know about fixed and floating home loan interest rates.
Fixed Interest Rate
|Floating Interest Rate|
|1||A rate of interest is fixed or decided at the beginning of the loan tenure||Interest rates are adjustable and keep changing as per the market conditions|
|2||Interest rates are fixed for a longer period, say three, five, or ten years. The right to reset the terms of the loan is reserved with the lender||Interest rates are usually revised at shorter intervals, say the calendar year or half of a financial year. This time period is usually unique to each customer|
|3||You must choose fixed-rate home loans if the interest rates are expected to rise in the near future||A floating rate must be opted for when interest rates are seen falling|
|4||It is advisable to opt for this option when you are comfortable committing to a fixed EMI for a long period||This option is recommended when you are not sure about future interest rate movements|
|5||Interest rates are usually higher than in the case of floating interest rates||Interest rates are marginally lower than fixed interest rates, thus lowering the total cost of the loan|
|6||Budgeting your finances is easier since there is absolute certainty with respect to the amount of EMI. You can use the home loan EMI calculator to plan your repayments||Almost every time there is a shift in market conditions, the interest rate changes. Depending on the choice of the borrower, either one of the EMI amount or loan tenure can be increased|
|7||In case of prepayment, i.e., if you decide to repay the loan amount before the completion of the tenure, a penalty is levied||Usually, banks do not charge any prepayment penalty in case of floating interest rates|
If you are still not sure about the type of home loan that’s right for you, you can go for a combination home loan, which is part floating and part fixed. Do remember that you can switch between these two types of rate at any time, except for a nominal fee that lenders generally levy in such cases.
If you are seeking a home loan, reach out to Tata Capital today for attractive interest rates and flexible tenure.