The housing loan market rose 16% in Financial Year 2018-19, taking the mortgage penetration to double-digit mark from 9.5% in FY 2017-18. Overall, the housing credit increased exponentially in the last 5 years with affordable housing segment and Government incentives coming into the scenario.
Now, when it comes to availing home loans, the interest rate is a determining factor when it comes to loan affordability. This proves crucial when the borrowers face dilemma considering the type of home loan they should opt for. Now, although you can choose between a fixed or floating rate of interest, deciding which one is best for you can be difficult. So, you must understand these two options and make an informed decision.
What is a fixed interest rate?
While searching for the best home loan offers, one might come across a fixed home loan interest rate. This interest rate is immune to the fluctuations in the market and remains steady throughout the loan tenor.
When a borrower opts for a fixed rate home loan, he can easily forecast his EMIs. Apart from that, as fixed interest rates remain steady, you can plan your home loan repayment conveniently. Concerning this, you can use a home loan calculator to determine your monthly outgo and then decide if the credit amount is affordable for you.
However, as the rate remains constant, lenders usually charge a slightly higher amount as compared to a home loan on floating interest rate.
When should a borrower opt for a fixed interest rate?
A floating rate of interest is ideal for you if the prices at the time of home loan online apply is low, and you can make the most out of it. For instance, if the rate was 10% a few years ago and now, it has fallen to 8% – it is best to avail an advance with a fixed rate.
Besides, you can use your lender’s home loan calculator to calculate the EMIs by putting in the fixed interest rate, loan amount and tenor.
What is a floating interest rate?
As the name implies, the floating interest rate varies throughout a loan tenor. This type of rate is directly related to the fluctuations in the market. So, when the rates drop, your housing loan can instantly benefit from it.
However, it is impossible to predict the EMIs with certainty. Therefore, in the event of a spike in home loan interest rate, the borrowers will have to pay more towards your housing advance.
Nevertheless, you can always negotiate with your lender to extend your loan tenor. With the loan tenure extended, the rise and fall in the rate of interest even out.
When should a borrower opt for floating interest rate?
If a borrower is well-versed with India’s real estate market, choosing a floating rate is more beneficial. Also, if the borrower is expecting that housing loan rates might fall in the near future, choosing a floating rate is ideal.
When it comes to choosing a lower home loan interest rate, the vast majority of borrowers opt for floating rates. By now it is clear that there is no concrete way to choose between floating or fixed interest rate. So, it is up to borrowers to compare the various options in details set forth by financial agencies and then settle on one that best suits their requirements.