Getting a house of your own is one of the most important decisions taken by an individual. It takes a lot of research and planning to find the right home loan. Even after that, getting approved for the home loan of your choice can be tricky. As home loans are usually applicable for a number of years, it is also necessary to choose the right interest rate. So how do you choose between a fixed rate of interest and a floating interest rate?

What is a Fixed rate of Interest for Home Loans?

As the name suggests, a fixed interest rate ensures that your repayment happens in fixed equal installments for the entire loan term. The rate of interest remains fixed for the entire loan tenure and you do not suffer from any changes in the actual interest rate due to any sudden market fluctuations. People who can afford to repay home loans for only a fixed sum of EMI every month usually prefer a fixed interest rate as it is risk-free and helps them to manage their monthly budget well. However, the drawback of a fixed interest rate is that it is usually higher than the floating interest rate by upto 2.5%. Also, in case the market rate falls, you do not benefit from a lower interest as such.

What is a Floating rate of interest for home loans?

As the name suggests, a floating interest rate fluctuates as per the market conditions. Floating interest rate are linked to the base rate determined by the RBI and the floating component. The benefit of a floating interest rate is that it is atleast 2 percent cheaper than the fixed rate of interest. Therefore, you end up saving on a large amount of interest over the years. Plus, whenever there is a market fluctuation and the base rate goes low, you can enjoy a lower EMI for your home loan. The only drawback for a floating rate of interest is the uncertainty in the EMI value every month. Any market fluctuation can also result in a higher EMI for your home loan that can throw your monthly budget out of order.

Whether you go for a fixed interest rate or a floating interest rate, it is crucial that you estimate your monthly budget to ensure that your home loan repayment is not affected. Since home loans usually run for a number of years, you must compare different loans offered by banks and check their interest rates to decide what suits you best. You can also make use of Letzbank’s home loan EMI calculator to estimate your EMI amount. All you need to do is enter the home loan amount, the interest rate and the loan tenure and the calculator will present you a detailed EMI summary.

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