Know your rates before you borrow

Posted by Anurag Mishra on July 5th, 2017

Getting a home loan for your new house is not a big deal now, though it remains one of the greatest personal achievements. Before rushing to the lending organization, the potential borrower has to do a lot of homework before landing on the best home loan plan. While applying for the home loan the first thing that bothers the borrower is whether to go for the fixed or floating rate of house loan interest.

Fixed rate of house loan interest implies that the repayment installment is fixed throughout the tenure. The rate doesn’t change with market fluctuations. In the initial years of the loan tenure the borrower has to pay the interest amount and the principal amount is paid in the later phase. Fixed rate of interest has certain benefits like; firstly, the rate of interest remains fixed irrespective of the market fluctuations. Secondly, borrowers who are good at budgeting and need a fixed monthly repayment schedule, this form of interest rate is suitable for them. Thirdly, it gives a sense of certainty and security to the borrower. Benefits don’t mean it’s full of roses and no thorns. The major drawback of this kind is that it is usually higher than the floating rate of interest. Depending on the market condition, if the rate of house loan interest decreases, owing to the constant nature the fixed rate borrowers don’t get the benefit. Experts admit that fixed rate is better option if the economic scenario promises a hike in the interest rates.

As the name implies the floating rate of house loan interest is variable in nature. It gets adjusted with the market fluctuations. It is cheaper than the fixed rate. Owing to its variable nature it may cross the fixed rate, but most of the time it is for shorter time span. As the financial health of the market improves, the rate again comes down. With the hike in the rate the borrower has to shed off thousands extra, dismantling their budget plan. Again they can save extra amount if the rate comes down. So the rates keep on fluctuating.

There is another kind of loan interest rate; it is termed as truly fixed interest rate. In this type, the rate of interest is fixed for the initial years and after that the rate switches to floating rate of interest.

When it comes to decide for the type of interest rate, majority of the borrowers prefer floating rate of interest. It depends on the borrower what suits them the best. Experts suggest that the borrowers shouldn’t plunge blindly into getting the home loan. After comparing the rates, terms and conditions, speed of disbursement and transparency of the procedure including various parameters set forth, then only they should catch hold of the suitable financial partner. If certainty and security is the priority, then fixed rate is best and if one can adjust the sail according to the market fluctuation then floating rate is countable. It’s totally in the borrower’s discretion.