Juggling figures to budget the EMI for home loan?

The EMI you repay against the home loan amount is a whole unit of principal amount, interest rate and the loan term. With the ever rising property prices, lowering interest rates people prefer to take a home loan and pay monthly EMIs over monthly rents, nowadays. But the lowering interest rate and longer tenures cannot be the only thing for hooking with a home loan for quite a long exhaustive period of time. Before getting a home loan try to understand the importance of an interest rate in your loan tenure. There are three kinds of housing loan interest rates: fixed, floating and combination of fixed & floating rates. Most of the financers insist upon the combination of fixed & floating, but it’s better to choose your own interest rate from the available depending on your financial profile and convenience.

The housing loan interest rates play a vital role in reducing or increasing the interest cost. Before selecting know the benefits and drawbacks of each property loan interest rate.

Fixed rate of interest: the interest rate is fixed for the whole loan tenure; it may rise a bit in case of dire market condition. Some of the benefits are:

·        The rate doesn’t fluctuate depending on the market condition and government policies.

·        Suitable for risk averse persons who prefer stability over money.

·        It’s suitable for good budgets with fixed monthly repayment schedule.

The drawbacks of fixed loan of interest are:

·        It is higher than the floating rate of interest.

·        It is no benefitted with reduced rate of interest.

·        Borrowers have to pay the same amount of interest cost which may be higher than floating rate.

Floating rate of interest: this interest rate is adjustable in nature and fluctuates depending on the market condition and government policies. Some benefits are:

·        It’s is lower than fixed rate of interest and reduces the interest cost.

·        It decreases more when the market condition prospers.

·        It helps in savings for future, in case the rate climbs up.

The drawbacks of floating rate of interest are:

·        Monthly installments fluctuate owing the fluctuating rates.

·        Interest rate may rise and even cross the fixed rate in case the financial health of the market degrades.

·        No stability in monthly budget & not suitable for risk averse & budget friendly people.

·        The combination may increase the interest cost.

Combination of fixed & floating rate: in this rate of interest the rate is fixed for a committed period of time, and then it switches to floating rate of interest. Some benefits are:

·        It helps the borrower with a fixed budget initially, when they are not ready for fluctuations.

·        After the committed period, when the rate switches to floating rate they pay lower EMIs compared to the earlier installments.

·        They can save money for future installments.

The drawbacks of this interest rate are:

·        The interest rate may rise if the market rates are higher during the switch over.

·        Adjusting with the fluctuations may be problematic with fixed source of income in case the rate increases.

All these juggling figures may be tamed and help you to set a monthly budget with a online EMI calculator and get you a suitable home loan tailoring the interest rate depending on your affordability and financial profile. All the rates are combination of advantages & disadvantages, in order to enjoy some benefits you have to adjust with the drawbacks.