A Home Loan is a secured loan product where the lender provides finances for the purchase or construction of a residential property. One can also avail a housing loan to buy a plot of land and construct on it. Home Loans are also issued to extend/ repair/ renovate/ alter a new or second-hand property. The Home Loan is taken by a borrower against the property to be bought.
Most lenders get the property valued independently and provide loans based on their estimated value. It is important to remember, however, that frequently their valuation is significantly lower than the actual cost and hence the requirement of the borrowers goes up. Banks are provided 80% of Property markets value till 75 Lacs Loan if Customer is looking more then 75 Lacs Loan then Bank will give Home Loan 75% of the market value.
Fixed interest rate refers to repayment of home loans in fixed equal installments over the entire period of the loan. In this case, the interest rate doesn’t change with market fluctuations.
During the early part of the tenure, the monthly payments are used to service the interest and the principal is served in the later parts of the tenure.Very few lenders in India offer pure fixed rates where the rate of interest remains constant over the entire tenure. Most lenders have a reset clause of 3-5 years. If the borrower is certain that the rate of interest is the lowest in the market, only then should he opt for fixed rates of interest.
|Interest rate remains fixed irrespective of market conditions||The major drawback with fixed interest rates is that they are usually 1-2.5 percentage points higher than the floating rate home loan.|
|A fixed-rate home loan is ideal for those who are good at budgeting and want a fixed monthly repayment schedule.||If the interest rate decreases, the fixed rate home loan doesn’t get the benefit of reduced rates.|
Home Loan Floating Interest Rate
Floating interest rate implies that the rate of interest will vary vary with market conditions. Home loans on floating interest rates are tied to a base rate plus a floating element thereof. So, if the base rate varies, the floating interest rate also varies.
The interest rates will depend on the base rate of the bank. As and when the bank changes their base rate, the interest rate changes. The change can either be in terms of the EMI or the tenure. For example, if the bank increases their base rate, the customer could choose to increase his EMI or to increase his tenure. Or if the bank decides to decrease their base rate, the customer can reduce his EMI or his tenure.
|Floating rate home loans are cheaper. If you are getting a floating interest rate of 10.15 per cent while the fixed rate is 12.15 per cent, you still save money if the floating interest rate rises by up to 2.0 percentage points.||The drawback with floating interest rates is the uneven nature of monthly installments.|
|Even if the floating rate goes over the fixed rate, it will be for a short duration. The interest rates will surely fall over a long period and bring savings.||In conclusion, when it comes to choosing the interest rate, a majority of home loan borrowers go for floating rates.|
In recent times, some lenders have come up with innovative home loan products like dual rate of interest. This is where the interest rate on loans remains fixed for initial 1-5 years and thereafter switches to a floating rate of interest.
But, it is up to the borrower to decide what suits him best. Before taking a decision, it is advisable to compare home loans from different lenders in detail.
If you are thinking of buying a home and are looking at loan products, look no further. At vikashfinancialservices.com, we help you get the best deals on loans. Click here to access our EMI Calculator which will help you calculate how much EMI is payable every month.
Your EMI depends upon the interest rate which the bank charges you, the tenure of the loan as well as the loan amount. You can also alter the tenure and the interest rates to see how you can reduce the EMI or the tenure of loan.
Home Loan eligibility depends upon various factors. A few of them are listed here –
Income – Your income determines the amount of home loan you are eligible for. Banks generally keep the EMI to income ratio at .60 to .70.
Tenure – The longer tenure you opt for, the more is your home loan eligibility and the lesser is your EMI.
Age – Your age will determine your home loan tenure and hence your eligibility.
Interest Rate offered – Banks offer Fixed and Floating Rates of Interest. If your interest rates are on a lower side, then the loan eligibility will be higher..
CIBIL Score – Your credit report tells the bank about your repayment capacity and hence determines if you’re eligible for a loan.