Home Loan is a ticket to your own home. However, before you avail one it is important to understand the various aspects related to borrowing a home loan.
Home loans are offered at the best rates among all credit products in India. Various banks and NBFC offer concessional rates and offers to attract prospective buyers to avail credit. Various factors such as your income stream, credit history and previous loans determine the rate at which a lender would extend a housing loan.
You can apply for a home loan for various aspects related to buying and building your home. For example: You can Apply for Tata Capital Home Loan for multiple purposes, such as:
- buy a new house/flat
- buy a plot of land for construction
- build a house on owned piece of land
- Improve/extend your existing home
- purchase a resale property
- pay off a running home loan from other bank, NBFC
You can apply with a co-applicant. Any of your family memberssuch as spouse, parents, children or siblings can act as co-applicants.
Here in this article we will particularly focus on floating interest rates of home loans in India, besides finding out why a majority of borrowers opt for floating interest rate of home loans.
Home Loans: Floating or Fixed interest rate?
When you avail a floating home loan interest rate, you basically agree to pay the interest rate, basis the fluctuations in market rates. The floating home loan interest rate is also known as “variable rate of interest” and thus rate of interest varies over the period of debt.
There is however a base rate that applies to a floating home loan interest rate.This base rate is ideally communicated to the borrower when the loan is approved. The actual interest rate would vary below and above this base rate depending on the other components that make up the floating interest rate.
The financial institutions, including banks and NBFCs, decide upon the floating Home Loan Interest Rate as per the guidelines set by the RBI and this is done on a quarterly basis. One of the factors that make the floating home loan interest rate more attractive to a borrower as compared to fixed rate is the fact that these are lower than fixed home loan rate offered by the lender. Thus a majority opt for lower rate while initiating the loan account.
Besides the customer profile, the financial institutions consider factors like inflation, marginal cost of funds and current account deficit during the calculation of the base rate.
Benefits of the Floating Home Loan rate of Interest
The key benefits of a floating home loan interest rate include following:
- Low home loan interest rate
Floating home loan rates are marginally lower than fixed rates.Currently the floating home loan interest rate in India varies in the range of 9.85% to 11.75% p.a.The lower home loan interest rates result in lower processing fees and other associated charges.
- Unpredicted Gains due to market fluctuations
With floating home loan rate you can always capitalize with the favourable fluctuations in the market rates. Thus, there is always a scope to enjoy additional cost drop and keep your loan burden low. Likewise, you can also lock the rate and opt for fixed rate in between the loan duration if the market moves in the reverse direction. However a nominal cost will be involved in switching the rate structure.
- Low home loan interest rate
- Savings are slightly higher
With low interest rate and lower processing fees, your EMI is also bound to be low. Thus flexible home loans are friendly for your budget.
You must opt fora floatinghome loan interest rate in following scenarios:
- If you are expecting home loan interest rates to fall in the near future.
- If you are not a market savvy person, and are not sure about interest rate movements. Floating rate is always lower than fixed rate and thus you should opt for one.
- If you are looking forward to save maximum on loan repayment and keep low EMIs.
You must opt for a fixed home loan rate in following scenarios:
- You want a repayment plan with a fixed EMI structure. A lot of people prefer to pay for a fixed structure of EMIs.
- If you think that the market interest rates are going to rise in the near future, avail the fixed home loan rate.
- If you think that interest rates have already dropped enough recently, you must lock the lower fixed rate in this case.
For those of you, who are unsure about the decision, must opt for a combination loan which is part fixed and part floating.
In all there cannot be a one-size-fits-all advice. The final decision would certainly vary from individual to individual.