Benefits of floating interest rates on a Home Loan

Benefits of floating interest rates on a Home Loan

A home loan is accompanied with several salient features, which allow the people to avail the home loan while purchasing the home. The Home Loan has indeed changed the whole aspect of the affordable housing. For the people, who are in need of the housing of their own, this financial help has indeed turned the tides in the favor of the people, who are short of the funds required to buy a home.

Accompanying with the low rate of interest, the home loan allows the people with several advantages. The benefits of the home loan are given below:

• Availability of additional funds required to purchase an own home

• The loan tenure of the home loan allows the people with enough time to repay the loan amount

• The easy EMIs attached with the home loan allows the people to live tension free

• A very low rate of interest allows people to save a huge amount to be paid as interest

The Home Loan allows the people with the availability of funds required for the purchase of a home. Since the rate of interest is low, any person can look towards this home loan with ease. What is even more encouraging is that the Home Loans are long tenure loans, and thus comes with several benefits of their own.

Two type of rates of interest

Every home loan comes with the option of two types of rates of interest; one is the fixed rate of interest, while the other is the floating rate of interest. Both these rates of interests are the crucial aspects in the home loan decision and a lot depends on what choice you make for your rate of interest while opting for the home loan to buy a home. As these are the highly impactful in the overall loan amount to be paid when completed, there needs to be a very careful approach to be taken while considering, which one to go for:

Both fixed and floating rate of interest has their share of benefits and disadvantages. While we would clearly suggest you to opt for the floating rates of interest, here are all details, which clearly can help in making a decision of your own:

About Fixed Rate of Interest

The fixed rate of interest is the one, which remains the same for the entire loan duration. Either, the loan tenure is for 10 years or 20 years, the fixed rate of interest is never going to change. For example, if you took a home loan at the fixed rate of interest of 8.7%, whatever happens, the rate of interest will always remain 8.7% irrespective of the market conditions.

So, is there any benefit of opting for the fixed rate of interest?

Certainly yes! There are some benefits attached to the fixed rate of interest and when it comes to the certainty of the EMIs and fixed planning, the fixed rate of interest allows you with these both. With the fixed rate of interest, your EMIs will be fixed, thus it allows you to go with the preplanned approach and a determined budget. You can accurately evaluate your budget; all your expense and can accurately carry it forward until you repay your entire loan amount.

What goes against the Fixed Rate of Interest?

There are certain factors, which goes completely against the fixed rate of interest for Home Loans. The fixed rate of interest, since it is being fixed, there are chances that you are going to benefit from the reduction of the interest rate in the future. While, there is always a greater chance that the rate of interest on home loans, may decline in the long term, the loan borrowers on a fixed rate home loan will be deprived of getting any benefit of reduction in the rate of interest. Also, the fixed rate of interest attracts for the prepayment penalty. Thus, in case you are looking forward to the early closure of the home loans, you need to shell out extra money to pay as penalty charges for the foreclosure process.

Also, the fixed rate of interest is generally charged at a higher rate in comparison to the floating rate of interest, with the difference being seen as high as 2%, depending on the bank chosen for Home Loan.

Also, there are some banks, which allocates the home loan on the fixed rate of interest for a certain loan period only, after which the rate of interest turns into the floating rate, thus you are advised to check thoroughly all the papers of home loan and carefully go through the terms and condition of the bank home loan, before closing any deal.

So, does that push you towards the floating rate of interest for a home loan?

In fact, let’s know what does the floating rate of interest hold beneath it? Let’s get to the core details of the floating rate of interest on home loan.