Understanding the Different Types of Interest Rates on Home Loans


The dilemma of opting for fixed or floating interest rates on your home loan can be resolved through a good understanding of the pros and cons New Delhi, Delhi, India (NewsView) Unlike above, applying for and getting a home loan is relatively easier today to buy the house of your dreams. To push home loan sales further, financial institutions offer potential buyers attractive mortgage interest rate options. While accelerated home loans are well received by those who qualify, you need to think about what kind of interest rate is right for each borrower. This sometimes leaves people confused as to which loan offer is best for them in the long term. To resolve this dilemma, you must first gain a good understanding of the two basic types of mortgage interest rates – fixed and floating. Advantages and Disadvantages of Fixed Interest Rates In fixed interest rates, you will pay a fixed amount each month in the form of EMI (equivalent monthly payments) for the duration of the mortgage. Essentially, the number of installments will stay the same over the predetermined period. Typically, this can vary from 15 to 30 years, depending on your age, repayment capacity and other parameters as well as the lender in question. A fixed interest rate plan has certain advantages. Since market fluctuations have no impact on rates, they remain constant throughout your repayment term. Since rates are predictable, fixed interest rates are considered more secure. On the other hand, there are also some drawbacks. Unlike floating interest rates, fixed rates are typically 1% to 2.5% higher for mortgage loans. Since the rates remain constant, even if the interest rates fall, you will continue to pay the higher interest rate. During the term of office, this amount of differential interest rate can represent a significant sum. However, it is important to be aware of the fine print, as the term “fixed” is somewhat misleading. Realizing that economic conditions may necessitate a change in the interest rate, some lenders insert a clause in fine print stating that rates may be increased at any given time due to adverse conditions. In other words, even a fixed rate can fluctuate if the market situation requires it. If this clause is not mentioned in your mortgage contract, the rate may be fixed for the entire duration of the occupation. However, since different entities deploy different terms, you should confirm with your lender whether the fixed rate is only valid for the first few years or if it will continue for the duration of the loan. For those who don’t want to take risks, fixed rate occupancy is the safest route. Rising and Falling Variable Rates Depending on market conditions, variable interest rates may rise or fall. These interest rates are tied to a base rate provided by various lenders with the floating element. Therefore, if the base rate changes periodically, the variable rates will also change. But fluctuations in variable rates tend to be short-term due to their sensitivity to market conditions. In recent years, variable rates have become popular with home buyers as interest rates have fallen. There are also other advantages such as variable rates that are about 1% to 2.5% lower than fixed rates. Under favorable market conditions, interest rates could fall further. Conversely, during market fluctuations, rates may increase or even exceed fixed rates. Of course, these higher rates can only hold up in the short term. But for people on a fixed budget, a rise in floating interest rates could upset their calculations. Therefore, you need to be prepared for the unpredictability of floating interest rates and be prepared to take short-term risks by paying higher home loan IMEs. Overall, at the end of your loan term, variable rates could still save you money. Lenders also prefer that you go for the variable rate because they have the option to increase the rates according to the business cycle. With fixed interest rates, lenders could be charged a lower contract rate even when rates rise. Of course, it is possible that despite the option for a variable rate, rates will experience a bullish cycle. You will then have to pay interest at par or higher than the fixed rate. In such scenarios, borrowers can switch to the fixed rate by paying the applicable switchover fee. But if the amount of the mortgage is not too high or at the end of the term, there is no point in changing it. Meanwhile, if aspiring buyers have not been able to avail home loans from traditional lenders, fintech players such as Clix Capital can be conveniently approached for such loans. Clix offers easy home loans of up to INR 2 crore with tenure terms of up to 25 years. The interest rate regimes offered are floating and double interest rates. In double rates, interest is fixed for the first few years, followed by variable rates. In addition, Clix follows simplified documentation procedures. Clix Capital also offers renovation loans to renovate your home or complementary loans if you need additional funds to buy a home. Loans are also available for the purchase of land and self-construction. About Clix Capital Clix Capital is a new era of NBFC that is revolutionizing the lending space by offering differentiated digital lending products that are powered by technology and deep analytics. It offers a range of loan products to a diverse range of clients in the MSME and consumer segment, including personal loans, MSME loans, health loans and mortgage finance. Clix is ​​co-founded by industry veterans Mr. Pramod Bhasin and Mr. Anil Chawla and is backed by a private equity fund AION Capital Partners Limited (a subsidiary of Apollo Global Management, LLC – one of the world’s largest alternative investment managers with AUMs of $ 433 billion). Mr. Bhasin is the founder of Genpact and the former CEO of GE Capital India and Asia; and Mr. Chawla was the former CEO of GE Capital India and Asia’s Commercial Finance Business. Together, Mr. Bhasin, Mr. Chawla and AION jointly acquired the commercial lending and leasing business of GE Capital India in September 2016 and renamed it Clix Capital. For more information, please visit www.clix.capital.


(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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