What factors to consider before taking up fixed rate home loan and typically paying a constant home loan EMI while buying a home. FundooMoney Website: www.fundoomoney.com
Hello and welcome to FundooMoney, your 24X7 buddy on all your money matters! Home loan providers provide fixed rate and floating rate home loans. Which type of home loan works for you? Here, we explore the circumstances in which a fixed rate home loan works for you. But that’s in just a moment.
A major part of your EMI comprises of interest during the first half of your loan repayment tenure. Therefore, any change in home loan interest rates plays significant role in this period. It can make a can huge difference on the total amount of home loan interest you end up paying. It is in this backdrop, you need to view a fixed rate home loan. You also need to factor in whether interest rates, especially home loan interest rates are broadly rising or falling.
When interest rates are falling If there is a high likelihood of lower interest rate in the future, you would end up paying a much higher interest by taking a fixed rate home loan. A person with a floating interest rate home loan would pay much lower interest when the interest rate comes down.
When interest rates are rising If there is a greater likelihood of home loan rate rising in the near future, opt for a fixed rate home loan. It would shield you against a rising interest rate since you will continue paying the same EMI.
Be prepared to pay a premium for a stable EMI If you are not comfortable with home loan rate fluctuations and are willing to pay a premium for a stable EMI, opt for a fixed rate home loan. However, do remember that even a fixed rate home loan is not completely insulated from rise in home loan interest rate. The home loan provider may hike the home loan rates applying the “reset clause” in the home loan agreement.
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