What Interest Rate Options Are Available For a Home Loan Applicant

A home loan is a long term loan applied for by one to purchase the house of their dreams. As with any other loan, the bank charges a certain percentage as interest on the loan. There are two main types of interest options that are provided to the applicant to choose from:

1. Fixed interest rate

If an applicant opts for a fixed interest rate, the EMI charge of each month will be fixed. This is a considerably safer option are there is no type of risk involved. The benefit of such an interest rate is that it protects the applicant from any changes in the home loan interest rate which may cause an increase in the EMI amount charged per month. Usually, the fixed rate tends to be lower than the floating interest rate which is beneficial for the applicant. If however, you plan on prepaying your loan amount, you may be required to pay an early repayment charge. Also, if the floating interest rate falls below that of the fixed interest rate, the applicant will end up shelling out a larger amount of money for their EMIs.

2. Floating interest rate

If an applicant opts for a floating interest rate, the EMI charge each month will vary depending upon the changes in the interest rate in the market. This is believed to be a comparatively riskier option as an individual cannot predict the changes in the market. Some banks allow you to repay the loan in lump sum amounts making it more affordable. The applicant can repay the loan amount by taking advantage of the times when the interest rate is low. If however the interest increases, it can be put a larger financial strain on the applicant.

The interest rate on your home loan depends on whether you like stability or wish to take a risk. If you want an interest rate that provides stability with zero amount of risk, then you should opt for a fixed interest rate. If however you do not mind taking the risk just to get an affordable repayment process, you must opt for a floating interest rate for your home loan.

Some banks also provide their customers with the option to switch the interest type they have depending on their needs. Home loans take a long time to be repaid by the applicant. The interest rate plays a huge role in the repayment process. Hence it is extremely important for a home loan applicant to select an interest rate carefully.