If you are planning to avail a Home Loan, you must increase familiarity with the working of housing loans. Borrowers decide the Home Loan amount they want keeping in mind their income and repayment capacity. They then decide the loan tenor or the number of years they want to repay this loan. Lenders, on the other hand, decide the housing loan interest rate at which the borrower must extend the Home Loan. Selecting the right loan value and tenor is important to ensure ease of repayment as well as minimize the cost of borrowing the loan. Availability of the loan on low housing loan interest rates is also equally important for the same reasons.
Types of Housing Loan Interest Rates
Individuals planning to avail themselves of a housing loan must know lenders offer Home Loans on two different housing loan interest rate types fixed and floating.
Fixed-interest rate Home Loans operate without being affected by external market conditions. Therefore, one’s Home Loan EMIs stay the same throughout the Home Loan tenor if one has opted for fixed interest rates. However, for lenders, fixed-interest rate loans are a riskier deal and consequentially, lenders charge a higher rate of interest on fixed-interest rate Home Loans.
Floating interest rate Home Loans are tied to an external benchmark, which the majority of times is the Repo Rate. Any changes in this external benchmark cause the Home Loan interest rates to fluctuate. A hike in the external benchmark causes the Home Loan interest rates to go up and vice versa. Thus, EMIs can change frequently in the case of floating interest rates, which makes monthly budgeting and planning challenging for floating-interest-rate Home Loans. However, floating interest rate Home Loans tend to be cheaper than fixed interest rate Home Loans.
Choosing the right interest rate type for you is important. These days, most lenders offer home loan floating interest rates only. However, if you are someone who finds comfort in predictability and well-chalked-out plans with no surprise, a fixed-interest rate Home Loan may be a better choice for you.
Factors that Affect Housing Loan Interest Rates
Current housing loan interest rates start from 8% per annum but can go as high as 14%. To establish candidature for the lowest housing loan interest rates, one must have an understanding of the factors that impact housing loan interest rates.
