Interest rate for home loans: A much calculated approach for home buying

For home buyers, spending hours in search of that ‘perfect property’, doing a brief background check or short listing from the given options is all part of the game. In contrast to a common belief, just comparing home loan interest rates is not adequate. It is imperative to make sure that the home loan does not turn out to be too swanky, over the duration.

In a floating rate loan, the installments for home loans will keep fluctuating with changes in interest rates, while in fixed-rate loan the monthly outgo is computed at a higher interest rate, when market liquidity is at its peak. To keep the overall interest outgo at its minimum, it is crucial to find out whether to opt for fixed or floating rate loan.

Taking the right decision

Interest rate for most of the home loans are connected to the lender’s base rate that depend on the banks, depending on the RBI guidelines. Since interest rates are reviewed in every quarter, interest rates may fluctuate depending on the bank.

In comparison to floating rates, fixed rates are likely to remain unchanged for the overall tenure of the loan. Fixed rates are normally 0.5-1.5% higher than the prevailing floating rates.

Although fixed rate loans are allocated at a higher rate to make up for the risk of rate fluctuations, numerous banks offer fixed rates only for a particular time-period. Floating loans promise of more flexibility in its pre-payment terms, however, they require constant monitoring to check its effect on the cash flow.

Opting the right one

The decision to go with a fixed rate or floating rate depends on distinct economic factors and outlook. One crucial factor which can be easily identified is the difference between fixed rates and floating rates. If an individual that a particular interest rate is high, he/she can switch to floating rate.

If the present rate is low, it is recommended to go for a fixed interest rate. If an individual is looking for stability in cash flow, a fixed loan rate is perfect for them. On the basis of the ability to take risks, the choice between fixed and floating loans should be made. To be on the safer side, it is highly recommended to consult an expert and get the best loan.