What you should know about home loan interest rates before you get a loan

Gudi Padwa just went by, and like every year banks and finance institutes all over the country are offering attractive deals on home loans. This is the time of year when everyone is in a hurry to get their finances in order. With loan rates being favourable, now perhaps the best time to get your housing finance. The financial is coming to an end soon, which means most of us will be receiving handsome bonuses as well. This makes the coming few days the best times for us to invest in new things, be it property, automobiles or any other sort of investment.

For someone who is new to the world of finance or, has recently started earning, understanding home loans and home loan interest rates can be quite daunting. But this knowledge can help you make good financial decisions, in the future if not immediately.

The most basic thing you need to know about house loans is that they have two main types of interest rates. These are fixed and floating interest rates. Banks and non-banking financial companies offer both fixed and floating interest rates. Since home loan interest rates are the most important aspect of the loan, getting it right is the key to repay without any financial stress or default over time.

Here are a few key things that you should know about home loan interest rates.

1.      Fixed rate of interest on a loan means that the equated monthly instalments or EMIs are constant over the tenure of the loan. On the other hand, for floating interest rates, the EMIs fluctuate as per the market dynamics as interest rate increases or decreases.

2.      Fixed interest rates are always set higher than floating interest rates, by 1 to 2.5% at the time of the sanction of the loan. This can be both and advantage and a disadvantage. Since these rates remain constant you don’t have to worry if there is a hike in the housing loan interest rates due to the passing of a bill or implementation of a new rule, but at the same time if the rates see a dip, there is no benefit to you.

3.      Floating interest rates are usually lower than fixed interest rates although parameters like inflation and current account deficit are used in calculation of base rate by RBI which can mean an uncertainty and different EMI for each repayment or instalment for the loan. This can be difficult to keep track of as each instalment may be different.

These are the most basic things you should know about housing finance, there is much more to learn, but as they say, if you’re clear on your basics you should be able to make wise decisions about your finance.