Owning a home is a milestone in life for many individuals. However, to translate this dream into reality requires diligence, hard work and financial commitment. Just like you take time and effort when looking for a house, you also need to weigh your budget and financial backing carefully. Given your current life stage and budget, you should plan to purchase your home right.
It will 0help if you get your finances straight when it comes to buying a house. It can be done easily with the help of a home loan. Getting a home loan is easy nowadays. However, selecting a suitable home loan is a tough task. It is because there are several factors you need to consider. For instance, a home loan’s interest rate determines its affordability, which is why it is essential to use an online home loan EMI calculator before finalizing to borrow the loan. While researching about home loans, you may have come across terms such as fixed-rate home loan and floating rate home loan, leaving you perhaps bemused. There are online home loan EMI calculators that help consider the type of interest that you opt for. Knowing about the differences between these loan types is crucial while you research for a suitable home loan.
What is a Fixed Rate Home Loan?
Fixed interest rate home loans, as the name suggests, comes with fixed equal payments for your home loan over the entire period. The interest rate of the loan amount does not change with the fluctuations in the market.
With the help of the home loan EMI calculator, you can check that you pay most of the amount served towards the interest during the initial days while a minimum portion of the EMI goes towards the principal amount. In the later years, you pay a full or maximum amount towards your principal amount.
What is a Floating Rate Home Loan?
The floating interest rate home loans, as the term suggests, is the interest rate, which varied with market conditions. Home loans on floating interest rates are associated with a base rate plus a floating element of that. It means that the floating interest rate varies if the base rate varies.
Both rates have their pros and cons. However, if you choose the loan for a tenure of 5-10 years, then select a floating rate of interest. It is better for the long-term as in case if the RBI decreases the interest rate, then you will also benefit from the reduced rate of interest. However, if you will opt for a fixed rate of interest for full tenure, then you ought to pay the same even if the RBI changes the base interest rates. You can understand it better with the help of a home loan EMI calculator with a floating rate of interest.
Let’s Know the Difference Between Them at a Glance:
|Fixed Rate of Interest||Floating Rate|
|Higher Interest Rate||Lower Interest Rate|
|Not influenced by financial market circumstances||Affected by fluctuations in the financial market|
|Fixed EMIs||EMIs change as per interest rate|
|Budget planning doable||Challenging to manage financials|
|Sense of security||Generates savings|
|Suitable for a short period (3-10 years)||Ideal for a long time (20-30 years)|
|Lesser risk||Higher risk|
Fixed Interest Home Loan is perfect for you if the rate of interest at the time of taking the loan is low, and you want to make the most of it. For instance, if the interest rate were 12% a few years ago and has presently fallen to 10%, now would be an excellent time to take a home loan with a fixed rate. However, if you are well-versed with the real estate market, selecting a floating interest home loan is best.
To sum up, it’s a personal choice to choose the type of interest rate you should go for. What works for one person might not necessarily be the best choice for others. If you prefer to plan your finances well ahead and not leave anything to chance, a fixed rate would be better suited to your needs. You can get helped in making the right decision by using the online home loan EMI calculators to your advantage.