When you first thinking of applying for a Home Loan, the first consideration that should come to your mind is whether you would be able to repay the loan or not. Getting a loan is a long-term financial commitment and so it is a good idea to think and plan long-term to be able to pay off the loan smoothly, without falling back on any of the payments. There are many decisions to be made which would affect your repayment over time and one of them is whether one should opt for fixed or floating Home Loan interest rates. Both have their advantages and disadvantages, depending on one’s financial situation. Here are some facts that would help you make a decision.
In a fixed rate loan interest, the rate is fixed at the time of taking the Home Loan and it does not change at all during the duration of the tenure for which the loan was taken. However, today some banks have eased their methods and the borrower has the option to fix their rates for 3 to 10 years of specific periods but the lender still retains the right to reset the interest rate at any point of time, according to their discretion.
Opting for a fixed rate loan is good for those who have every financial detail chalked out to the last digit and know how much they would be paying from their salary for the course of twenty or so years. They can plan their budget with confidence and they know they will always be able to pay their EMIs on time. This is why, although fixed-rate loans have higher interest rates than floating interest rates, most people opt for it because they do not want any kind of uncertainty while making their budget. So if the borrower thinks that the EMI with a fixed rate would not exceed 20% to 30% of their take-home salary, then it is a good option to go ahead with. Using a housing loan EMI calculator to ascertain how much would you have to make towards monthly payments in this kind of a loan.
In case of a floating interest rate, the interest rates are mostly linked to the lender’s benchmark rate which is again dependable on the current market interest rate. The interest rate is subject to changes according to the market scenario which means that the EMIs of the borrower is also going to go up and down accordingly. The upside is that if the market rates drop, then the EMI rates would go down and the borrower would be able to save some money. The tenure of the loan also gets readjusted to account for the changed interest rate. Even if the rate increases, the tenure of the loan would also be increased so as not to financially burden the borrower.
Going through the various options, once you have decided on the interest you want to go for, submit some documents required for Home Loan like Photo ID and Age Proof, Address Proof and the IT returns for the last three consecutive years, which is the same for all. For salaried people, one would have to provide the salary slip of the last six months and the bank statement of the last three months. The loan would then be disbursed.