Choose home loan for your needs

Borrowers can avail loans for various needs like purchasing a house, constructing or renovating a property, or even home extension. Home loans come in different flavours and it is very important for homebuyers to select an option that suits their specific needs. The decision to select between fixed and floating rate options must be based on the prevailing interest rate, market scenario, nature of the borrower and other influencing factors.

Here's how the different loan options work:

Fixed rate loan:

Fixed rate loan, unlike what its name suggests, can be changed by the lender under extreme market conditions. Loans like fixed for three years indicate it is fixed for a constant period of three years. After this period , the interest rate on the loan is reset to the market rate prevailing at that time. Only 'pure' fixed rate loans have a truly constant rate of interest. However, they are not so popular because the interest rate charged is very high. Borrowers who seek predictability and want to know in advance what their loan is going to cost them can opt for a fixed rate loan. Some borrowers who panic when the rate fluctuates find fixed rate loans suitable for them.

Floating Rate loan:

The floating rates move downwards when general interest rates fall and upwards when rates outside go up. The interest rate fluctuates with the change in the rates in the economy. Hence, a borrower's EMI outflow could increase if the lender decides to increase his rates. The borrower can stand to gain in a floating rate loan when there is a slide in the rate of interest. When rates go up, your loan can become more expensive and resets your EMI repayments till date. Those borrowers who feel the rates are likely to dip further and seek to benefit from it can opt for floating rate loans.

Hybrid Loan

In case of a hybrid loan, a part of the loan amount is locked under fixed and the remaining exposed to floating rate. The borrower can decide what percentage should be locked under fixed, what percentage exposed to floating rate fluctuations. Hybrid loans are the best option for homebuyers who cannot decide between fixed and floating options.