Life comes with a set of milestones and buying a home is certainly one of them. If you feel like buying a home then you need to consider the finance as well. For first-time homebuyers, a myriad of finance options is available. Also, several crucial steps are involved before purchasing a property like obtaining a mortgage and evaluation of your creditworthiness. There are various home loan options available which are provided by private banks or non-banking financial companies. There are various types of property loans including land-purchase loans, home purchase loans, home construction loans, NRI home loans, home extension loans, and home improvement loans. For home loans, interest rates are either fixed or floating. Choose wisely, if you are availing of a home loan.
A few must-know things before choosing home loan interest rates:
Fixed interest rates
In fixed-rate home loans, borrowers have to pay fixed equal installments as home loan repayment. The interest rate remains the same even if the market fluctuates. Fixed interest rate home loans enable a planner to make long-term planning and budgeting decisions and ensure financial security since they don’t need to expect any future risks. Floating loan rates do not vary consistently in India.
Floating interest rates
Floating interest rates vary according to market conditions. The rate of interest changes with a change in Repo Rate as well. If the Repo Rate increases, floating interest rates go up, if Repo Rate comes down, interest rates come down. One choosing a floating interest rate has to pay a base rate while a floating element is added to the loan. A base rate is a benchmark set by the lenders and below the base rates, loans are not provided. The benefit of floating interest rate over fixed interest is that it is typically 1% to 2.5 % lower than the floating interest rates and borrowers have the chance to enjoy unexpected gains. The floating rate of interest may vary if the market condition is extremely volatile. For those who plan a financial budget to the last rupee, floating interest rates make it difficult to plan monthly budgets.
When are floating interest rates ideal?
A floating interest rate would be ideal if the base rate stays constant or will reduce over time. Another advantage of choosing a floating rate interest rate is that you can make prepayments with excess income. Floating interest rates work well if there is a potential that your income will rise shortly.
When is the fixed interest rate ideal?
A fixed interest rate is ideal when you do not want to take market risks associated with an increase in interest rates. EMI at 25% or less of the salary ensures EMI payment is timely.
Home buying is a big process and so is the financing of the same. If you opt for a home loan for financing in Infinity World punawale review project, then research which forms of home loan suits you the best. Both fixed and floating interest rates have their pros and cons. Stay informed and choose the one that best suits your financial need and position.