Home loans are very popular amongst people, and almost every working-class person planning to start a family in his own home opts for one. Home loans are long-term and help spread out your expenses over a duration of time. This will make asset ownership more affordable.
At the start, home loans were relatively new and were offered on a fixed interest rate basis wherein the person who has taken a loan had to pay a fixed interest included in the monthly EMIs. However, in recent years, there is now an option for people to go for a floating interest rate to be applied on a home loan. Now, what is a floating interest? What is the difference between that and fixed interest? All these questions are natural for a first-time loan applicant.
Here is everything you need to know about fixed and floating home loan interest rates:
- What to opt For? Fixed or Floating Interest?
A person who applies for a home loan always has this question in mind whether he should go for a fixed interest or a floating interest rate. This is a very valid question, and it needs to be given a serious thought. Banks and companies offering housing loans often provide you with both the options and you can choose to go with anyone of the both. However, the interest rate is the main component of a loan, so you need to be knowledgeable about it.
Both types of rates have their own advantages and disadvantages. A person should do careful research before applying for a house loan as it is a long-term plan and it is important you choose the right loan provider. Below we have listed both, the advantages and the disadvantages of fixed rates and floating rates.
- Fixed Interest Rates on Home Loans
Fixed interest rates on home loans are very popular as the traditional interest rates which were used when home loans were first introduced. The advantage of having a fixed interest rate on home loan is that the person applying has a clear idea about how much his EMIs are going to cost exactly. Some people prefer this interest rate because it gives them clarity and peace of mind, knowing the exact cost they will be incurring.
However, the biggest disadvantage you can get in fixed interest rate is that these rates are always around 1% to 2.5% higher than the floating interest rates. Hence, they are disadvantageous if we consider savings.
- Floating Interest Rates on Home Loans
Floating interest rates are much different than fixed interest rates. Floating interest rate, as the name suggests, is variable. The home loan interest rates vary based on a bank’s Marginal Cost of Lending Rate (MCLR). Alternatively, it will depend on NBFC’s base rate. The RBI (Reserve Bank of India) announces the quarterly base rates, and based on these rates, the floating interest rates are decided.
The biggest advantage you can have with this interest rate is that it is always lesser compared to the fixed interest rates. However, recently, floating interest rates have become much more popular with some lenders offering 8.35% as the minimum.
So, before applying for a home loan, always check for both types of home loan interest rates. This will help you make a decision based on which one suits your requirements the best.