Fixed Vs Floating Rate of Interest For Home Loans
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Posted On :
Jan-20-2012
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Article Word Count :
615
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Today it is not difficult to get home loan, but it is best to compare the rates before applying for a home loan.
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To get a home loan for buying your own house is a good and a widely used option. But many of us don’t actually know the exact different between the various types of loans available. There are different types of loans designed for specific expenditure like personal loans, home loans, car loans, etc. In this article we are going to discuss in brief about how to get home loans and the different between floating home loans and fixed home loans (the two very well known kinds of home loans)
Floating rate of interest in home loans is explained as the interest that is basically charged on a floating basis and is specified as divergence at the index rate placed by the creditor, this rate generally changes and doesn’t remain constant with the change is macro economic factors merely with the decisions and conditions of the Reserve Bank Of India- RBI.
If there is an increase in the rate of interest then your home loan term or tenure will also increase as banks that make available to you home loans keep your EMI steady. Accordingly, if the rate of interest decreases, your tenure of home loans will also remain low. In floating rate home loans, the institutions or banks who have granted you loans, will pass the macro economics risk to the borrowers.
Fixed rate home loans are generally not fixed interest rates that don’t change during the entire term of your loans. Here, you are offered rates that are fixed not for the lifetime of your loan but only for few years. After the term of fixed rate is over, the financial institution or banks has full freedom to increase the rate of interest.
When rates in the market go down, the rates on floating rate of home loans is decreased which then becomes a better option for the borrowers. Hence, the people who have applied for fixed home loans interest rate are not much benefited. Similarly, the market rate increases with the increase in fixed and floating rate of interest in home loans.
From the information stated above, we can be sure that in fixed rate of interest you get to start by paying a high interest amount or rate with the benefit of being fixed rate but after few years when the bank adjusts the rate of interest accordingly you realize the difference and have to face the loss.
Also you don’t realize that you don’t get any advantage or add on with the fall in market interest rate.
Home loan eligibility and interest rate
There can be different purpose for applying for home loans. It can be to finance the purchased house, for renovation of your house, for expanding the already owned house, to buy a land or plot, to start a new construction independently, etc.
Most of the financers market schemes or home loan plans which give you a liability to repay these loans over a period of 20-25 years. The eligibility of home loans or say the amount you are suitable to credit depends upon your location, amount, income, and the value of property. Borrowers generally pay 40% of their monthly income for home loans as EMIs. Also, the overall amount you can be funded is 80% of the total value of your property.
Fees and Charges for home loans
Creditors usually charge a fee of 1% of the loan granted, but this fee can also be a fixed amount in case of some lenders.
If at all you foreclose the amount before the specific tenure, creditors charge a penalty up to 2% of the pre-closed amount.
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Article Source :
http://www.articleseen.com/Article_Fixed Vs Floating Rate of Interest For Home Loans_136610.aspx
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Author Resource :
Gaurav Khurana is an expert on Home Loan. He is the Founder Director of DIALABANK.COM (Call 60011600) and Ex National Sales Head – ING Investment Mgt India and Vice President Citibank N.A
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Keywords :
home loan, loan, personal laon, Life Insurance ,
Category :
Finance
:
Loans
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