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2 mins Read | 2 Years Ago

What Are the Different Types of Interest Rates Offered on Home Loans?


Owning a home ensures security and stability that a rented house can never provide. Purchasing a house that you and your family can call a home, is one of the most cherished life goals anyone could have. Today, due to the Home Loan interest rate being on the lower spectrum, you can achieve your dream of being a homeowner, by procuring a Home Loan.

But, getting a Home Loan is not as straightforward as it sounds. It is a huge responsibility. With a Home Loan, you’re looking at a loan tenure of approximately 20 or more years. Therefore, you must do your research carefully, regarding every aspect of a Home Loan.

One of the main concerns when you’re looking for a Home Loan is the interest rate. Lenders let you borrow money to purchase a home at a specific interest rate, and when you start repaying the loan, you must also repay the interest. Thus, by the time you would have repaid your loan in full, you would have paid more than the principal amount. The amount that you pay over and above your loan, is nothing but the interest. Therefore, the burden of your loan will increase or decrease based on the rate of interest that the lender has decided for your loan. This makes Home Loan interest rates the most important factor, while considering a Home Loan.

If your interest rate is high, then your overall loan repayment amount will increase and vice versa. Another factor that comes into the picture is the type of interest. Yes, there isn’t just one type of Home Loan interest rate. When you get a Home Loan, you have the option of choosing it based on the type of interest rate being offered. This depends on your own personal views on finance and your financial plan for the future.

Let us take a look at the types of interest rates offered on Home Loans.

Types of Interest Rates On Home Loans

Fixed Interest Rate

A Fixed Interest Rate simply means that the lender or the bank decides an interest rate that remains fixed throughout the entire loan tenure. This provides you the benefit of knowing how much you are going to repay over the loan tenure, even before you sign the loan agreement. Your Home Loan EMI, too, will remain the same throughout the tenure.

Floating Interest Rate

A Floating Interest Rate is a type of interest rate that fluctuates according to the market trends. The rate may go up or down, based on how the market is behaving. With a floating rate of interest, the total interest that you pay may increase or decrease. Thus, your EMIs will also increase or decrease, accordingly.

Which one should you choose?

Whether you choose a fixed or floating interest rate on a housing loan is entirely up to your own understanding of the market. If you are someone who loves stability, are averse to risks and have a fixed financial plan, then a fixed interest rate would be better for you. However, you must keep in mind that a fixed rate of interest is slightly higher than a floating one, and even when the market is in decline, it will not reduce your interest rate.

On the other hand, if you’re a risk-taker and have a flexible financial plan, then you may choose to go with a floating interest rate. Fluctuations in the market can lower your rate, and that may be advantageous. However, the rate may also go up based on the same fluctuations, resulting in a higher interest.

Thus, you need to make a conscious choice regarding the type of interest that you want to go for your Home Loan.

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