Most individuals aim to buy their own house someday. However, arranging the finances is always going to be a challenging task given that real estate prices can get quite expensive. What most homebuyers do is rely on home loans to get the required funds to buy houses. Now, a home loan can cover up to 75%-90% of the property cost. Most financial institutions offer a period of 20 years for repaying a home loan. This provides the borrower with an ample amount for their property purchase where they can also pay off the loan easily in monthly instalments.
For those who are looking to apply for a home loan, one of the most important aspects that they need to focus on is the home loan interest rate. Making sure that the home loan rate being offered is affordable is quite important as it can have a significant impact on the monthly instalments of the loan. Different lenders can charge different interest rates, depending on their individual terms and conditions. Now, there are two different types of interest rates that borrowers can choose from. These are fixed interest rates and floating interest rates.
To understand which one to go for, read on to learn more about each interest rate in detail and how they end up affecting a home loan’s EMI payments.
Fixed home loan interest rate
A fixed home loan interest rate, as the name suggests, is a rate that remains the same throughout the loan’s repayment tenure, regardless of the market fluctuations. This way, it becomes easy for a borrower to calculate their home loan EMIs as the interest rate is constant. A fixed interest rate is generally slightly higher as compared to a floating interest rate.
Floating home loan interest rate
A floating home loan interest rate is subject to change during the loan’s tenure. This fluctuation can take place because of market conditions. Getting an estimate of the home loan EMIs is tricky in this case as the housing loan interest rate can change during the loan’s tenure, based on which the EMI payments could get lower or higher.
So, which home loan interest rate should a borrower opt for? Now, this depends on various factors. For instance, if the market rates are low at the time of applying for the home loan, the borrower can opt for a fixed home loan interest rate. This way, a borrower can take advantage of the current prices and keep paying the same interest rate for the entire duration of their loan tenure. They can keep paying the same interest rate even if market rates surge in the future. However, if a borrower is expecting the home loan interest rates to fall in the future, they can apply for a home loan with a floating interest rate.
Ultimately, a borrower should choose an interest rate after carefully considering their preference and budget. Also, one should research the interest rate fluctuations before choosing their pick.