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A home is what we all vouch for as nobody wants to stay in a rented accommodation and keeps switching from one place to another, causing frustration and exhaustion at the same time. So, what do you look up to? Often it's the home loan that serves your home wish. You can do away with a loan by paying off the cost of a home through your savings. But since a home is priced in the range of lakhs to crores, it may not be possible for you to pay off the sum in one go, don't you think so.
In order to realize your dream home in the most economical fashion possible, it is imperative you join hands with a lender offering you a home loan at attractive interest rates. Since the tenure of a home loan is usually around 20-30 years, you seriously need to decide upon which interest rate option should you choose. Is it the fixed rate or floating rate?
A risk-averse home loan customer will always be concerned over the EMI amount that he/she will have to pay each month. The EMI, as we all know, depends on the interest rate charged. Needless to say, more the interest rate greater will be the EMI and vice-versa. With floating rate, the EMI goes for a change based on the changes in lending rates by the lender from time to time. Presently, the home loan market is ushering a wave of falling interest rates thanks to the spiral in deposits post the monumental move of demonetization as announced the government on Nov 8. So, a floating rate home loan is the most sought after option.
But if the interest rate cycle reverses and go upwards a couple of years from now, it will reflect into the increasing EMIs and hence take out a massive chunk from the pocket. So, if you are risk-averse, all you bother about is to find an answer to the most overriding question, should I fix my home loan? Irrespective of the economic fluctuations, the rate of interest will remain the same in the case of fixed rate home loans. I know, it won't be enough to make your mind on fixed rate home loans. So, a scan of the fixed rate is vital to let us know whether it is beneficial or not. Recognizing this need, we have come up with the advantages and disadvantages of fixed rate home loans. Folks, let's
(a) Soothes your pocket against the sudden spike in lending rates, which can be the case with floating rate loans.
(b) Gives you a piece of mind with the same amount of EMI to be paid across the loan tenure.
(c) Perfectly suited for risk-averse customers.
(a) Most lenders do not provide the home loan at a fixed rate for the entire tenure. Generally, the loans are kept fixed for 3-5 years. Subsequently, the bank or a housing finance company can revise the interest rate. So, if on the revision, the interest rate is found higher, the EMI and interest outflow will be greater, giving you sleepless nights.
(b) In case you want to prepay your fixed rate loan, you can do by paying a charge which can be around 2%-4% of the outstanding principal amount.
(c) Often fixed rates are found to be more than floating rates.
(d) Fixed rates can be excessively higher on a longer loan tenure. And when things veer around home loan, which invariably is taken for as long as 20-30 years, you can imagine the kind of dent that can happen to your pocket due to fixed rate.
(E) The fixed interest rates have nothing to do with the repo rate changes as done by the Reserve Bank of India (RBI) from time to time. Rather it is linked to market interest rates, which on the dynamic side, can even give the stock market a run for its money. Every new market information will either cause a rise or fall in the market interest rates.
Now comes the entry of a weighing balance, which when measures the advantages and disadvantages of the fixed rate home loan, comes out with a result showing more of the latter than the former.
I hope you have made up your mind on your query, should I fix my home loan? If not, then do it fast as it the matter of your money that comes to you by sweating it out at your workplace. In my view, a floating rate option can be a messiah for you in the long run and end up saving a lot of bucks for you to put on other essential things in your life.