Types of interest rates and their benefits.

Posted by Anurag Mishra on July 21st, 2017

Buying the dream house is not only about the best muharat to step in & the grand grihapravesh party. It calls for long exhausting loan tenure with the interest rates fluctuating now and then, playing a tug of war with your monthly budget. Nowadays the improvised banking scenario has reached most of the household passing a ray of hope of building their own home some day with easy home loans and small EMIs for repayment. The EMI includes portion of the principal amount, the interest rate and the loan term. Home loans interest rates determine the interest cost you pay for the loan amount you take. When a financer is merging their interest of investment along with your interest in buying your dream house it is understood that they will keep their share of profit as the interest cost as you own the house.

There are three kinds of home loans interest rates for three kinds of people like risk averse person will go for fixed rate of interest, risk taking people will go with floating rate of interest and confused people will go for combination of fixed and floating rate. Let’s break each type and understand their benefits:

Fixed rate of interest

From the name it is understood that it has relation with something that is constant. Yes you are right, the fixed rate of interest is constant for the whole tenure, unlike the floating rate it is unaffected by the market fluctuations and government policies. In rare cases with dire market conditions the rate may rise. Generally it is fixed. This type of interest rate is for risk averse people who are ready to pay extra but will not compromise the stability with fluctuations. The benefits of this rate are: stable EMIs & you pay less interest rate in case the market rates increase.

Floating rate of interest

This rate of interest adjusts itself according to the market condition and government policies. The rates keep on fluctuating throughout the loan term. The rate comes down when the market conditions are prosperous and the rate rises when the market meets inflation. This type of interest rate is suitable for people who can adjust themselves depending on the need of the situation. The benefits of this rate are: with the improving market conditions & the government policies the rates available are the lowest and are on the slope, less rate reduces the interest cost & when the rates are low you can save handsome amount of money.

Combination of fixed and floating rate

People who are confused between the floating & fixed, the best option for them is go with the combination of the two rates. The interest is fixed for a committed period of time and after that the rate switches to floating. The benefit of this rate is that during the initial phase of your home loan tenure when you have other financial commitments and repayments, you cannot afford a fluctuating monthly budget so it’s better to pay little more for stability. After that with financial stability in your income you can afford few fluctuations.

One cannot be sure of the best home loans interest rates, selecting a particular type depends on the needs, preferences & financial profile of the borrower. The flexibility to change the interest rate levied on your home loan depending on the present circumstances makes the repayment easier and budget friendly. Remember that the EMI should not exceed 30-40% of your monthly expenditure.