When planning to buy a new house or to undertake any kind of renovation, home loans becomes an essential requirement. Home loans are a long time commitment therefore it is important to avail such a mortgage that is beneficial for the borrower in the long run. While opting for a loan, it is crucial to understand all the terms and conditions of the loan.
While looking for the right kind of home loan, it is important to get into the details. Borrowers must consider all the important factors such as prepayment charges, processing fees, flexibility in services and rates along with cheap rate of interest. Lower rate of interest is often seen as a big attraction however it must be remembered that only after combining all the factors, the loan’s true cost can be calculated.
A person availing home loan can opt for any of the two types of interest rate. These rates of interest differ from each other in various features and some of the most important factors are:
Fixed interest rate: As the name suggest, the interest rate of this type of loan remains fixed during the loan period. The rate of interest does not vary with the market rate and hence is beneficial for the borrowers. Fixed interest rate can be availed for a time period of 20 years.
Loan availed under this scheme is priced higher than its counterpart. A major drawback of this loan type is that even when the market experience a downfall, the borrower is required to pay a higher amount as the interest rate.
Floating interest rate: Loan availed with this type of interest rate keeps on fluctuating with the market condition. This type of loan is linked with the base rate system and thus when the base rate changes, the interest rate also undergo a change that can be upward or downward.
People choosing floating interest rates are required to review their loan account periodically. A reduction in the base rate can work in the favor of the borrower as the monthly installments are reduced.
Apart from these loan types, a borrower can also availed the semi fixed rate of interest. In this type of loan, a person can keep the interest rate fixed for a period of 3-4 years and afterwards the interest rate can be converted in the floating type.
A comparison between the loan rates is also important to get a cheaper option. Different banks and financing institutes must be consulted before choosing the right mortgage. Loan options may vary depending upon the requirements of the borrower therefore first prioritize you needs before getting an approval on the mortgage.
So floating or fixed loan, whatever you choose, always remain realistic with your needs. Before finalizing upon a loan scheme it is always a good idea to get in contact with a reliable and expert lender who can guide you in the right direction. And most importantly, if you have a good credit score, the terms and conditions of the housing loan are often negotiable.
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