home loan interest rates

Fixed interest rate refers to repayment of home loans in fixed equal installments over the entire period of the loan. In this case, the interest rate doesn't change with market fluctuations.

During the early part of the tenure, the monthly payments are used to service the interest and the principal is served in the later parts of the tenure.Very few lenders in India offer pure fixed rates where the rate of interest remains constant over the entire tenure. Most lenders have a reset clause of 3-5 years. If the borrower is certain that the rate of interest is the lowest in the market, only then should he opt for fixed rates of interest.

Benefits Drawbacks
Interest rate remains fixed irrespective of market conditions The major drawback with fixed interest rates is that they are usually 1-2.5 percentage points higher than the floating rate home loan.
A fixed-rate home loan is ideal for those who are good at budgeting and want a fixed monthly repayment schedule. If the interest rate decreases, the fixed rate home loan doesn't get the benefit of reduced rates. 

Home Loan Floating Interest Rate

Floating interest rate implies that the rate of interest will vary vary with market conditions. Home loans on floating interest rates are tied to a base rate plus a floating element thereof. So, if the base rate varies, the floating interest rate also varies.

The interest rates will depend on the base rate of the bank. As and when the bank changes their base rate, the interest rate changes. The change can either be in terms of the EMI or the tenure. For example, if the bank increases their base rate, the customer could choose to increase his EMI or to increase his tenure. Or if the bank decides to decrease their base rate, the customer can reduce his EMI or his tenure.

Benefits Drawbacks
Floating rate home loans are cheaper. If you are getting a floating interest rate of 10.15 per cent while the fixed rate is 12.15 per cent, you still save money if the floating interest rate rises by up to 2.0 percentage points. The drawback with floating interest rates is the uneven nature of monthly installments.
Even if the floating rate goes over the fixed rate, it will be for a short duration. The interest rates will surely fall over a long period and bring savings. In conclusion, when it comes to choosing the interest rate, a majority of home loan borrowers go for floating rates.

In recent times, some lenders have come up with innovative home loan products like dual rate of interest. This is where the interest rate on loans remains fixed for initial 1-5 years and thereafter switches to a floating rate of interest.

But, it is up to the borrower to decide what suits him best. Before taking a decision, it is advisable to compare home loans from different lenders in detail.
If you are thinking of buying a home and are looking at loan products, look no further. At AndromedaLoans.com, we help you get the best deals on loans. Click here to access our EMI Calculator which will help you calculate how much EMI is payable every month.
Your EMI depends upon the interest rate which the bank charges you, the tenure of the loan as well as the loan amount. You can also alter the tenure and the interest rates to see how you can reduce the EMI or the tenure of loan.



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