With the increasing price of properties, it has become indispensable for home buyers to have a loan. The loan may be availed from a financial institution or a bank to purchase a house. Home Loan is undeniably the most reasonable means to realize your very own dream home. Well, though it is easy to get the fund, banks however, charge a percentage on the amount funded as interest. Now, the Interest rate in the Housing Loan refers to this annual percentage (APR) which the borrower needs to pay.
It is easy to loans from various institutions. You need to be careful to choose the smart rate. Banks put forward, two types of rates to be precise; the fixed rate of interest and floating rate of interest. Though hard, however, the most essential decision for the customer is to pick a suitable scheme while availing housing loans.
You may pick fixed-rate home loans that permit you to plan your budget. On the other hand, you may avail the floating rate of interest. The later offers the benefit of the variation in the interest rate. Well, which one to pick is a question that confuses every home loan seeker.
Home Loan Types
1. Fixed rate
It allows the repayment in unchanging equal monthly instalments (EMI) over the whole tenor of the loan as it does not vary with market rise and fall. A definite percentage of the principal amount is agreed to and this remains fixed for the entire tenure.
2. Floating rate
This is also termed as Adjustable Rates. This refers to the interest rate that depends on the market and fluctuates as per the economic state of the country.
Which one should one I go for?
Media reports on banks mounting rates due to price increase might direct you to go for fixed interest rate, but in reality, this might not be the right choice. It is important to consider that banks do have the power to amend the rate because of unforeseen alteration in the money market condition even during the period of the agreement. It is hence important for the applicant to go through the loan agreement precisely and then decide on the interest scheme. In general, floating rates for home loans are cheaper as compared to the fixed rates.
Banks though offer customers the choice of switching the rate plan by paying a switch fee anytime during the loan period. Every financial institution has their own pricing for home loans, LAP and land loans. The bank computes the interest rate on the basis of the Prime Lending Rate (PLR). Any alteration in the base rates will automatically be relevant to the existing customers as well as new customers with no discrimination.
Factors that influence your home loan rate
The rate offered by the institution depends on various factors. to mention a few customer’s job profile, residence location, builder profile, type of home loans selected, other financial relationships with the concerned lender (financial organization) etc. Banks line interest rates in a variety of ways (ex. monthly reducing rate, flat rate) and so on. It is difficult to get a true picture of which type is the best. Banks even offer housing loans to NRI clients. However, the rate offered to them is poles apart from that of general customers. RBI has; however, banned lending lower than Base rates, barring restricted categories such as loan against fixed deposits, employee loans etc.
Wrapping up
To ensure that homebuyers enjoy unsurpassed interest rates I hereby share all the information on the same. Hope you find this helpful.
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