Today, home-ownership is within the reach of every average citizen, courtesy of easy home loans. Taking a loan to fund home purchase may seem daunting, but the right knowledge will dispel all fears. How? To make the repayment experience smooth and comfortable, lenders offer two different types of home loan interest rates – fixed and floating. Each will impact your loan EMI and tenure planning. Hence, it’s vital for you to know about each in detail.
Get to know each of the two types of home loan interest rates.
Fixed home loan interest rates
A fixed interest rate under home loan means that the rate of interest will remain fixed or unchanged throughout the loan tenure. As a result, fixed interest rates give borrowers a sense of certainty as to their monthly EMIs and tenure. For this, a home loan EMI calculator is a useful tool. Just input the values of the principal loan amount, home loan interest rate, and tenure and know your EMIs in advance. You can even adjust the values for convenience.
Note – Fixed interest rates are generally 1 to 2% higher than the prevailing floating rates.
Floating home loan interest rates
A floating interest rate is one which is subject to change according to a change in the prevailing market rates. The interest rate will be pegged to the base rate of RBI, and any changes in this base rate will affect your interest rate on housing loans.
Note – As per the RBI’s rules, lenders cannot impose a prepayment penalty on home loans with floating interest rates.
Perks of each
Apply for home loan after having gone through the perks of each type of interest rate.
Fixed home loan rates
Not all of us love surprises, especially when it comes packaged as a volatile home loan interest rate. If you feel that your EMIs are comfortable and you do not want any change, opt for fixed interest rates. To arrive at a suitable EMI, you can use a free online home loan calculator for EMI.
When you opt for fixed interest rates on your home loan, you can plan your finances better since everything, from tenure to EMIs are known to you.
Floating home loan rates
It is best to opt for floating rates when you perceive that the base rate of the RBI will either remain the same or is likely to go down. This will, in turn, keep your interest rates constant or reduce them in the future. Moreover, opting for a floating interest rate allows you to prepay your housing loan in case of available funds without additional prepayment charges involved. Prepayment means lower home loan interest outgo for the remaining tenure.
Is it possible to switch between fixed and floating home loan rates?
Yes, you can switch between fixed and floating home loan interest rates; however, to do so, you will be charged a specific conversion fee. So, it’s better to make an informed choice before applying for your home loan online.
Now that you know the difference, opt for interest rate of your choice. Before you apply, compare lenders and their offerings – an ideal lender would offer highly competitive home loan interest rates in India, flexible EMI options, and high home loan eligibility and accessibility.