Few evaluated step can reduce the interest cost.

House loan interest is the lowest in the history of home loan. It varies from 8.4-10% and these lower rates are so tempting that people are joining the bandwagon of home loans with great enthusiasm. But, they forget that it’s about a long and exhaustive tenure and the interest cost they have to pay over the loan amount is also a big chunk. To appreciate the working and self-dependent women many financers offer almost .05% concession in the home loan interest. For the potential borrowers, if you want to reduce the interest cost, few evaluated step in the beginning can reduce the interest cost over the principal loan amount. Along with the principal loan amount & the loan term; the interest rates plays a vital role in your home loan.

To reduce the interest cost, a single step in the beginning can help you a lot. Once you decide to take a home loan, try to arrange maximum amount for the margin money because it will reduce the principal loan and that will help you to reduce the interest cost; easing your debt burden.

Next important thing that plays a crucial role in determining your interest cost is the loan term. Though longer tenure would reduce your EMI charges, but in the end of the tenure when you calculate the interest cost, the interest cost expenditure increases a lot. So it’s better to pay higher EMIs for shorter tenure than lower EMIs for longer tenure.

The vital factor that determines the interest cost is the house loan interest; it has a major role in determining the extra chunk you have to pay for the home loan amount. Since every customer has different financial profile, in order to ease the loan burden and help the borrower to maintain a good credit score financers offer three types of interest rates: fixed, floating/adjustable and combination of both or truly fixed rate of interest.

If a borrower opts for a fixed rate of interest, he/she will have to pay little higher rate which is 1-2% higher than the floating rate. Though they have to pay more but they enjoy a stable monthly expenditure for their EMIs and interest cost, which will not increase if the market suffers from inflation and the rate of interest increases. The rates are fixed for the whole loan term.

If the borrower chooses a floating interest rate, then the rates adjust itself depending on the financial health of the economy. In the present scenario when the markets are enjoying the good health, the rates are decreasing and are lowest in home loan history. The borrower gets a scope to save some amount of money, which may help them with early payment of the loan amount by increasing the EMIs in future and decreasing the loan term. Lower rates help in reducing the interest cost.

There are some borrowers who may face the dilemma in choosing between the two rates, owing to stable income, they may not be able to handle the fluctuation initially if the rates increase. To make the loan repayment option simple, some financers offer a combination of the two aforesaid rates. In the initial years the borrower has to pay a fixed rate of interest for committed period of time after that it switches to floating rate of interest.

Evaluate each important factors especially the ones that affects the interest cost and consider your affordability, financial stability & profile before joining the home loan bandwagon. Give special emphasis to the house loan interest before selecting one.

Fixed vs. floating an eternal dilemma.

Remember the famous phrase from Hamlet,” to be or not to be, that is the question”, same is the dilemma when you have to select in between the fixed and floating housing  loan interest rates. When you approach a financer with your working co-borrower; with a good credit score, stable income to pay your EMIs in time and fulfill other eligibility conditions, you loan is approved by the financer without any hassle. The catch-22 situation is when you have to select from fixed or adjustable rates, because of their set of advantages and disadvantages. This article may help you to know the benefits and drawbacks of the housing loan interest rates and choose your suitable rate.

Considering various aspects of the interest rates in the current market scenario it is worth finalizing a particular rate of interest. Since it the most important aspect of any loan getting it right is the key to a burden free debt without any financial stress and default over time. Nothing comes free in this market, if you want to enjoy some privilege you have to bear the consequences also. So benefits and drawbacks are two sides of same coin. Same thing is applicable for the housing loan interest rates.

In case of fixed loan the rate of interest is fixed for the whole loan term irrespective of the market condition or government policies. This is can be a benefit for you if the financial health of the market degrades and the interest rate rises, because you will pay the same rate. In dire situations the rate may increase a bit. Now if you are a risk averse person and not ready to compromise with the stability of your monthly budget and mental peace, then you will go for fixed rate of interest. Though this rate is bit higher than the adjustable rate but easily assimilates in your monthly budget without any fluctuations and gives you mental piece.

Floating rate of interest is lower compared to the fixed rate if you notice the present market scenario it is the lowest in history. These low rates cut your interest cost. This adjustable nature is beneficial for you when the rates decrease with healthy market condition and government policies. If the rates increase then you have to pay high rates. In order to get lower rates you may face the effects of rising interest cost in future with increasing rates. Lower rates in present may help you save for future fluctuations, when the rates climb up.

To deal with the borrowers’ ordeal some banking and non-banking financers have come up with a combination of the fixed and floating rate of interest. It is termed as truly fixed or semi-fixed rate. The financers offer the loan at a fixed rate for a committed period of time and then switch the rate to floating rate. It is ideal for the beginners who needs time to prepare themselves and adjust their monthly budget with the rate fluctuations till then a fixed rate eases their burden.

As a borrower you can better understand your requirement and affordability. The monthly EMIs absorb 30-40% of the monthly expenditures, and the interest rate plays a vital role in deciding the EMI. So if you are risk averse then go for fixed rate, if you are prepared for the fluctuations then go for floating and if you are confused and need time to decide then go for a combination of rates. After all it’s your loan and EMI; you know your financial profile better and can craft the budget accordingly.

Do you know interest cost can be reduced?

The home loan can help people to accomplish the dream of buying a home. It is a long term liability that stays with the borrower for decades. Home loans interest rates are the most critical thing that the borrowers consider before applying for the loan. A slightest difference in the rate can translate into significant differences in the interest payout. Another important part of the home loan is the EMI, the borrower has to pay. The EMI makes 30-40% of monthly expenditure. To ensure that this monthly expense remains within the affordable limit customer opts for longer repayment tenure.

Home loans interest rates is the amount of extra money the borrower pays to the financer for the loan amount. For instance if the borrower takes the loan of Rs 40lakhs at 8.5% rate of interest per annum for ten years, then the borrower would pay Rs 3,40,000 approximately at the end of the loan repayment tenure as the interest cost.

This interest rate is classified under three heads:

• Fixed rate of interest: as the name suggests, it is fixed for the whole loan repayment tenure. A risk averse customer who believes in stability opts for this rate, as their monthly budget fixed for EMI remains the same unaffected by the market fluctuations and government policies. It is slightly more than the floating rate.
• Floating rate of interest: it is also termed as adjustable rate. The market economy has a direct impact on this ROI. It reduces with healthy market condition and increase with inflation. Government policies also affect the floating rate. The monthly EMI fluctuates with the fluctuating rates. Customers who like to take chances and are ready to pay the higher rates during inflation in order to enjoy low rates in the healthy market economy.
• Truly fixed or semi-fixed ROI: this interest rate is fixed in the initial period for a committed time, after that it switches to floating rate.

From the above rates the borrower can choose any kind of rate. They can switch to other kind of interest rate from the existing ROI with some minimal charges depending on their needs. Interest cost is crucial; this chunk of amount can dig a hole in your wallet. Crafting the loan tenure and the EMI diligently can help you save chunk of money.

Considering some factors may help you reduce the interest cost on the home loan from the financer.

Shorter tenure: in shorter tenurethe principal amount is repaid faster. The home loans interest rates are calculated on the outstanding loan amount thus quick repayment results in lower interest cost. Longer tenure increases the interest cost, though the interest rate is low.

Pay an extra EMI every year:incase the monthly budget does not allow any increase in the monthly EMI to reduce the tenure; you may use annual bonuses and other savings to pay at least an extra EMI every year, this may reduces the interest cost by reducing the loan tenure.

Increase the EMI by 5% each year: another smart choiceto reduce the interest cost is to increase the EMI by 5% with increase in income.

It is always beneficial to reduce the interest cost burden. You already have to pay loads of money for the principal amount, and increased interest cost will make the loan tenure exhausting for you. So plan accordingly to save yourself from being a defaulter.

Know your rates before you borrow.

House Loan Interest Rates: Create a Space of your own with HDFC Home Loans. Best housing loan interest rates for women and salaried individuals. Apply now!.

Why you should choose a floating house loan interest rates.

Probably one of the biggest dilemmas borrowers face whilst taking a home loan is choosing between fixed and floating interest rates. This is a debate as old as time and has haunted potential borrowers even before the loan application is made. Both fixed and floating rates afford borrowers their own set of pros and cons, and both are designed to suit different types of financial needs. This article will discuss some of the advantages a potential home-loaner stands to gain from with a floating type of interest rate.

It’s lesser than fixed rates!
House loan interest rates are probably one of the most daunting elements of the borrowing procedure. This is why the first and most important advantage of floating rate is that it’s always less than fixed interest rate. This is why most borrowers opt for this rate. With a floating interest rate you stand to receive an interest rate that would be at least 1-2.5 percent lesser than a fixed type of interest rate.

Second benefit; you stand to gain from unexpected drops:
To begin with, your interest rate is already less than that of a fixed interest rate. Now to add to this, if the market fluctuations or government policies call for a lowered base rate on the existing house loan interest rates, then those who have opted for a floating interest rate will stand to benefit even more.

Scope of savings:
Even if the floating rate stays the same, you stand to save a lot in comparison to opting for fixed house loan interest rates. And if the market fluctuates or government policies change in your favor, then you stand to save even more. Thus floating rate of interest affords you the scope to save a substantial amount of money.

Even the rates rise, it is okay!
Floating rates are anyways cheaper than opting for a fixed interest rate when the market is stable. But even in case the floating rate rises to match of the fixed rate, since house loan interest rates are cyclical, it will eventually fall over the tenure of your loan. Let’s take an example to better explain this, say you get a floating interest rate of about 11.5% while fixed interest rate is at 14 per cent, then even if the rates rise over a couple years by up to 2.5 percentage points, you’ve still saved in the initial years and when the rates fall again, you’ll again invite savings!

Should you choose a floating interest rate?
Well, considering all these advantages, if you think the market will remain constant over the tenure of the loan, then it’s a good decision to go in for a floating interest rate. What’s more is that if you have taken a short tenure for your home loan, then the chances of the rate rising above those of the fixed rate are less and so it makes sense to go for a floating interest rate if you have short tenures. But ultimately it boils down to risk appetite, if you are able to read the markets and predict a fall or no rise in the rates, the floating rate of house interest is ideal for you!

Why take a home loan even when you have sufficient funds.

Home Loans Interest Rates: Create a Space of your own with HDFC Home Loans. Best housing loan interest rates for women and salaried individuals. Apply now!.

Home loan interest rates explained.

Just like choosing your dream home, which involves so much of thought; choosing home loans interest rates too is no easy decision. And just like the type of home varies from person to person, your home loan interest rate too depends on certain parameters that vary from person to person. This article will aim at giving you a crash course on home loans interest rates, how they’re determined and their types.

So how is your home loan interest rate determined?
Your home loan interest rate is something that isn’t fixed, it isn’t a rigid number. It varies basis a few parameters. These parameters include your credit score, which is an overall report of credit history. If you’ve missed credit card payments or defaulted on previous home loan EMIs then you will have a lower credit score and a higher interest rate. Whereas if you have paid your credit bills and loan EMIs in a timely manner, you will have a higher credit score and a lower interest rate.

Another factor to influence the interest rate is the loan amount, higher the loan amount, higher the interest rate. Next on the list of factors that influences your interest rate is the amount of down payment you put down, higher the down payment, lower the risk you pose to a lender, and the lower the interest rate levied on you will be.

Next is the tenure, longer the tenure higher the interest rate, whereas shorter tenure will generally invite lower interest rates.

The last factor influencing the interest rate you receive is they type of interest rate you choose to go with and this will bring us to the next part of this article, types of interest rates:

What are the kinds of interest rate to choose from?
When it comes to home loans interest rates, one size doesn’t fit all. That’s why financial institutes offer varying kinds of rates. But broadly there are three types of home loans interest rates out there, namely, fixed, floating and semi-fixed interest rates.

Looking for certainty and security? Opt for fixed interest rates.

Fixed, as the name suggest, entails an interest rate that will remain the same over the entire period of your loan tenure. This kind of home loan interest rate offers recipients the scope to plan their finances better and adds an element of foresight and structure to the home loan process. The disadvantage though with fixed home loans interest rates is that fixed rates are usually higher than floating rates at any given point. And say if there is considerable market growth or change in government policy that lowers the interest rates on home loans, the fixed rate home loan will never see the benefit of these reduced rates.

Don’t mind a little risk to avail greater savings? Opt for floating interest rate.

The floating home loans interest rates starts of lower than the fixed kind of interest rate. With the floating interest rate, the base interest rate stays the same but the floating element may fluctuate over the period of your home loan tenure based on the current market scenario or government policies. If the overall market scenario seems good and stocks are on the rise, your interest rate will tend to fall. So, in the case of long term term loans, of say 20 years, if the signs point towards overall market growth and development, choosing a floating scheme will see your interest fall over the years, which even if it is marginal, adds up to a substantial amount of savings. The disadvantages with the floating home loans interest rates is that, with varying monthly installments, one cannot budget their repayment structure systematically and also there is the fact that falling market scenarios or change in government policies may see the rise in your interest rate.

Medium tenure loan and fixed income? Then opt for semi-fixed home loan.
The semi-fixed home loans interest rates are a combination of fixed and floating rates. With the interest rate remaining unchanged for a specified period of time, after which, the rate of interest is converted to floating. This is ideal for medium term loans and for individuals who don’t expect their income to grow over the period of the loan. The advantage with the semi-fixed interest rate is that it is ideal for a situation when the interest rate in expected to rise and then fall.

It is wise to consider all your option, weigh your own financial situation against these options and then accordingly choose a loan interest rate that suits your needs. And it goes without saying, that the choice is one that requires a great deal of thought and contemplation. We hope this article has been of some help and all the best.

How is your home loan interest rates a deciding factor?

House Loan Interest Rates: Create a Space of your own with HDFC Home Loans. Best housing loan interest rates for women and salaried individuals. Apply now!.