If you are opting for a Home Loan to purchase a house, you can select it based on the interest rate provided. Let us learn about the Home Loan interest rate, explore its common types, and determine which kind you should choose.

About Home Loan interest rates

The interest rate is the cost of borrowing funds from the bank. It decides the interest you pay over the tenure of your Housing Loan. Banks typically let you borrow money to buy a home at a particular interest rate. When you repay the Loan, you need to repay the interest as well. You would have paid more than the principal amount when you repay your entire Loan. The amount you pay over and above the Loan is the interest.

Consequently, the burden of your Home Loan goes up or down depending on the interest rate your bank decides on. This makes these rates the most crucial factor when considering this Loan.

Types of interest rates on Home Loans

The two common Home Loan interest rates typically offered by banks include:

• Fixed rates on Home Loans

In a fixed rate Loan, the interest rate is determined by your bank when you avail yourself of the Home Loan. This rate stays the same throughout the entire Loan tenure. It offers the benefit of knowing how much you need to repay over the Loan tenure before you sign the agreement. Additionally, the equated monthly instalment of your Housing Loan stays the same throughout the tenure.

The fixed interest rate is ideal if there is an expectation of rising interest rates. It can also be ideal if you want risk aversion and consistency in your financial plan.

• Floating rates on Home Loans

The floating interest rates change based on market trends. The rate may increase or decrease depending on how the market is behaving. With this interest rate, your total interest may increase or decrease. Consequently, your EMIs also go up or down. It is preferred if you expect the interest rates to decline, which can potentially reduce your overall interest costs. The floating interest rate is suitable for people comfortable with market fluctuations.

Which interest rate should you select?

Whether you select a floating or fixed interest rate on your Housing Loan typically depends entirely on your understanding of the market. Your choice should balance your willingness to navigate possible market changes and your requirement for financial stability. A fixed interest rate provides peace of mind. Conversely, a floating interest rate on your Loan ensures savings if market conditions are favourable.

Assess the future market forecasts and current trends to make a careful decision that matches your long-term financial goals.

Conclusion

There is more than one Home Loan interest rate available. Your choice of interest rate usually depends on your preferences, needs, and financial profile.