Understanding the jargon of interest rate.

Posted by Anurag Mishra on July 24th, 2017

A good home loan can fulfill you dream of purchasing the dream house. Whether you are a self-employed, salaried or NRI you can avail the home loan. The lending organizations today understand the importance of owning a home, which is not just a concrete structure. It is that cozy corner which gives you mental peace and a sense of self-accomplishment. To stand out in the competitive market, various institutions try to lure the customers with low interest rates, longer tenure and flexible repayment options. But, if you follow blindly the enticing figures then you end up digging a hole in your own pocket.

The most attractive part of any kind of loan is the interest rate. The lower it is, more attractive it is for the potential borrowers. But only a prudent customer can resist themselves from getting carried away with the mesmerizing rates. Generally the house loan interest rates are lesser than any other kind of loan interest rates.It is so because the tenure can extend up to 30 years and the loan amount is quite high, to make it affordable the banking body tailored it such way. The interest rate on the principal amount is the profit the organization earns from you, in exchange of the loan amount they offered.

House loan interest rates are classified under three categories: floating/adjustable rate, fixed rate and truly fixed rate. Each rate has its own advantages and drawbacks. So before fixing the type you need to be very cautious. The online sites of the banking and non-banking institutes provide the customers with an EMI calculator tool. It can help you to frame your home loan accordingly. It’s a wonderful budget tool, you have to input the principal loan amount, interest rate and the tenure, after calculating the tool will provide you the EMI amount. Here you can get an idea of how much you have to pay for floating rate and fixed rate.

Floating or adjustable rate of interest is that enticing figure, which lures the potential customers. This New Year ushered the potential borrowers with the good news of low interest rates on the home loans. With the improving market conditions the rates are coming down. The financial health of the market has direct impact on this type of interest rate. Owing to its volatile nature, risk averse customers generally don’t gamble with their set budget and avoid floating rates. When the market condition deteriorate the interest rate increases and when it improves the interest rate decreases. Depending on the present scenario majority of the borrowers prefer adjustable rate of interest as it is decreasing with passing years. Concern is when the rate increases as it disturbs the set monthly budget.

In fixed rate of interest the rate is constant for the whole loan tenure and remains unaffected by the market fluctuations. It gives the borrower a sense of stability and the EMI budget rhythm remains constant. They are ready to pay extra in order to get a stable amortization table.

Truly fixed rate is a variation in the fixed rate. In this rate the interest rate is fixed for a committed period of time after that the rate shifts to adjustable rate. Potential borrowers should go through each line properly, as some organization mixes the truly fixed with the fixed rate. Then the borrowers’ fixed budget start to fluctuate. So be sure what you are choosing.

Go through the documents properly before signing the dotted lines. You should know for what you are paying. Select the reputed lender who provides transparent loan transactions with flexible repayment options and competitive rate.