Benefits of floating interest rates on a Home Loan
Benefits of floating interest rates on a Home Loan
A home loan is accompanied with several salient features, which allow the people to avail the home loan while purchasing the home. The Home Loan has indeed changed the whole aspect of the affordable housing. For the people, who are in need of the housing of their own, this financial help has indeed turned the tides in the favor of the people, who are short of the funds required to buy a home.
Accompanying with the low rate of interest, the home loan allows the people with several advantages. The benefits of the home loan are given below:
- Availability of additional funds required to purchase an own home
- The loan tenure of the home loan allows the people with enough time to repay the loan amount
- The easy EMIs attached with the home loan allows the people to live tension free
- A very low rate of interest allows people to save a huge amount to be paid as interest
The Home Loan allows the people with the availability of funds required for the purchase of a home. Since the rate of interest is low, any person can look towards this home loan with ease. What is even more encouraging is that the Home Loans are long tenure loans, and thus comes with several benefits of their own.
Two type of rates of interest
Every home loan comes with the option of two types of rates of interest; one is the fixed rate of interest, while the other is the floating rate of interest. Both these rates of interests are the crucial aspects in the home loan decision and a lot depends on what choice you make for your rate of interest while opting for the home loan to buy a home. As these are the highly impactful in the overall loan amount to be paid when completed, there needs to be a very careful approach to be taken while considering, which one to go for:
Both fixed and floating rate of interest has their share of benefits and disadvantages. While we would clearly suggest you to opt for the floating rates of interest, here are all details, which clearly can help in making a decision of your own:
About Fixed Rate of Interest
The fixed rate of interest is the one, which remains the same for the entire loan duration. Either, the loan tenure is for 10 years or 20 years, the fixed rate of interest is never going to change. For example, if you took a home loan at the fixed rate of interest of 8.7%, whatever happens, the rate of interest will always remain 8.7% irrespective of the market conditions.
So, is there any benefit of opting for the fixed rate of interest?
Certainly yes! There are some benefits attached to the fixed rate of interest and when it comes to the certainty of the EMIs and fixed planning, the fixed rate of interest allows you with these both. With the fixed rate of interest, your EMIs will be fixed, thus it allows you to go with the preplanned approach and a determined budget. You can accurately evaluate your budget; all your expense and can accurately carry it forward until you repay your entire loan amount.
What goes against the Fixed Rate of Interest?
There are certain factors, which goes completely against the fixed rate of interest for Home Loans. The fixed rate of interest, since it is being fixed, there are chances that you are going to benefit from the reduction of the interest rate in the future. While, there is always a greater chance that the rate of interest on home loans, may decline in the long term, the loan borrowers on a fixed rate home loan will be deprived of getting any benefit of reduction in the rate of interest. Also, the fixed rate of interest attracts for the prepayment penalty. Thus, in case you are looking forward to the early closure of the home loans, you need to shell out extra money to pay as penalty charges for the foreclosure process.
Also, the fixed rate of interest is generally charged at a higher rate in comparison to the floating rate of interest, with the difference being seen as high as 2%, depending on the bank chosen for Home Loan.
Also, there are some banks, which allocates the home loan on the fixed rate of interest for a certain loan period only, after which the rate of interest turns into the floating rate, thus you are advised to check thoroughly all the papers of home loan and carefully go through the terms and condition of the bank home loan, before closing any deal.
So, does that push you towards the floating rate of interest for a home loan?
In fact, let’s know what does the floating rate of interest hold beneath it? Let’s get to the core details of the floating rate of interest on home loan.
About the floating rate of interest on home loan
Floating rate of interest or the adjustable rate of interest on a home loan is the rate of interest, which keeps on changing with the changing time, depending upon the market conditions. Thus, if the market conditions changes and there is a decrease in the benchmark rate on a home loan, the floating rate of interest on your home loan also decrease and vice versa. Tied to the base rate, the rate of interest on your home loan keep on changing with time, and thus called as floating rate of interest.
So, what does the floating rate of interest accompany with?
So, is there any beneficial side of the floating rate of interest, which motivates you towards the selection of the floating rate of interest on your home loan? Let’s take a close look at those:
The floating rate of interest on home loans is cheaper than the fixed rate of interest, as mentioned above. The rate of interest in case of floating rate is comparatively lower in case of the fixed rate of interest by around 1% to 2%. Since, the floating rate of interest keeps on changing over the time and depending on the market conditions, the chances are that, you will have to bear less rate of interest on your home loan, as the Indian lending market, I pushing for the lower rate of interest on home loans, in order to motivate people towards purchasing their own home. In the long run, the floating rate of interest will fall over some time and thus allowing the people with the better savings in the process. The floating rate of interest for home loans is not charged any prepayment charges. No banks are allowed to levy any prepayment penalty on the prepayment of the home loan, and thus a person is completely free (after the early years of the home loan) to close the home loan, whenever he/she wants to, by paying the remaining money on a home loan.
With the drawback that the EMIs can’t be predicted for sure and accurately, the monthly installments are varying and thus your budget will keep on vary in case you opt for the Floating rate of Interest. But it doesn’t mean that the floating rate of interest is troublesome for you. Let’s take some other benefits of the Floating rate of interest on home loans.
Current Market Scenario
The current market scenario states that the floating rate of interest has become a popular rate of interest for home loans and is the most preferred choice for the home loan borrowers across the country.
If you come across different banks’ websites, you will find the floating rate of interest popping up at the home loan, which clearly indicates the push for the bank for floating rate and upon comparison of the fixed rate of interest and floating rate of interest, you will find the floating one, much lower than the fixed rate of interest.
About making the choice
When it comes to making the choice, you will find the floating rate of interest being the upper hand everywhere. Wherever you will go and research, you will find the odds in favor of the floating rate of interest on home loans as compared to the fixed rate of interest. While the final jurisdiction depends on you, the choice of home loan and its rate of interest is solely dependent on your preference, there are certain aspects, which we would like to furnish about.
- In case you are too reluctant to go for the changing EMIs frequently, opt for the fixed rate of interest for your home loan needs.
- If you are pretty sure that the rates of interest will surely rise in upcoming years, Opt for the fixed rate of interest (however, for this you need to be an expert and a predictor, too!).
- If you are comfortable in paying high EMIs but can’t adjust with the changing EMIs, opt for the fixed rate of interest.
- The floating rate of interest can be availed in case, you are pretty sure that the interest rates are going to fall in upcoming years
- The floating rates of interest are accompanied with the changing EMIs and also changing loan tenure. So, if you are comfortable with these aspects, opt for the floating rate of interest. Also, at the same time, you have the liberty to ask your bank not to change the loan tenure, but to change the EMIs as and when needed.
- Also, if you are looking to save some interest cost in the near term, opt for the floating rate of interest on home loan.
When it comes to the early closure of the home loan, the home loan with the floating rate of interest attracts no foreclosure penalty by the banks; thus if you are seriously looking not to carry the home loan for the entire duration of the home loan, getting a home loan with the floating rate of interest is always beneficial.
When it comes to the choice, it has been seen that the majority of home buyers opt for the home loan at the floating rate of interest. There must be certain benefits for the floating rate of interest on a home loan, even if you are still not able to judge which one to opt for, at your home loan. If you are in dilemma, consider the aspects, which are generally in your favor. While the most people are concerned on how to save the interest incurring at the home loans, the primary concern should be the saving of your money; for which the Floating rate of Interest comes as a true winner. If your primary concerns are the certainty and security and want to take any risk, you can opt for the fixed rate of interest.
However, for sure nothing can be predicted regarding the market movements. It completely depends on the personal choice, preference, and comforts of a person, thus pushing the person to choose which side to be on; the fixed rate of interest or the floating rate of interest for a home loan.
You must always remember a fact in mind that the choice of the rate of interest will always a deep impact on the total loan amount you paid at your home loan. Since the home loans are the long-term responsibility, the choice of either of them must be done, by considering all the important aspects of present and even future. Evaluate your present income, your responsibilities, your expenses, your budget, your liabilities and more importantly your comforts and your vision towards the home loan taken for the purchase of your home.
Compare the different factors and aspects of both forms of the interest rates and even if it involves discussing and taking advice from your family member, include them in the decision making and make a choice. For us, the floating rate of interest holds the edge, considering several aspects; your choice may differ from us!Back