The fixed rates chosen would be legitimate only for the first few years, after which borrowers will have to repay the home loans at the revised interest rates
In India, currently, loan interest rates for buying a property are their lowest at 6.70 per cent. Many people are hastening to get their rates fixed at consistent levels, as it benefits in better money management throughout the initial loan tenure. This is because borrowers can better determine their equated monthly instalments (EMIs) and thereby return their home loans with ease.
Fixed interest rate home loans are ordinarily proposed at over one percentage point higher than the volatile interest rate and have been mostly targeted at the non-resident Indian (NRI) community. Financial institutions would usually never sell fixed interest rate home loans to their domestic customers rather be prompted to take a floating interest rate product.
Globally, it is usual to see borrowers opting for fixed-rate home loans during periods of low-interest rates. The essential takeaway is that the fixed interest rate prevents the risk of having to pay more in the case of risen loan rates. The sense of assurance that fixed-rate loans implant in the borrowers’ minds has driven many to incorporate them in their financial planning, so that they may estimate their future perfectly.
These sorts of home loans are best befitted for people who anticipate a rise in lending rates and are anxious about having to pay more towards interest in the future.
Why should an individual be circumspect of fixed-rate home loans?
Notwithstanding all their benefits, fixed interest rate home loans may not obey your purpose.
No bank offers a loan at the current rate and if you think it is a simply mistaken thought. This is because the fixed-rate proposed by banks or non-banking financing companies (NBFCs) is always more high-priced than the floating interest rates. In most cases, rates are fixed at around 75 basis points more than the floating rates proposed on home loans by lending institutions.
The Reserve Bank of India may declare a lowering of the lending rates after you take the home loan if the interest rate is too moderate. However, due to the fixed sort of interest rate, you will not restrain from paying EMIs at the new rate, which may be more moderate than the earlier interest rate.
Very few lending companies offer home loans at fixed interest rates for the intact tenure. This means the fixed rates chosen would be legitimate only for the first few years, after which borrowers will have to reimburse the loans at the revised interest rates (as available in the market).
This is because most lending institutions, excluding a few banks, offer mixed home loan rates that concede the interest rate to be fixed only over the first two to five years. Floating interest rates apply to the outstanding tenure of the loan.
In an economy inclined to rising interest rates, availing of home loans at fixed interest rates are favourable to home loan repayment soon.
However, a sudden reduction in interest rate charges may anticipate that you remain deprived of the benefits of low-interest charges and continue to repay the same amount as resolved during loan approval.