What Are the Different Types of Interest Rates Offered on Home Loans?


Owning a home ensures the security and stability that a rented home cannot provide. Buying a house that you and your family can call home is one of the most precious goals in life for anyone. Today, with the low-interest rate of the mortgage loan, you can fulfill your dream of owning a home through a home loan. But getting a home loan is not as easy as it sounds. It is a huge responsibility. With a home loan, look for a loan term of about 20 years or more. Therefore, you should carefully research all aspects of the home loan.

The interest rate is one of the main concerns when looking for a loan to buy a home. Lenders allow you to borrow money to buy a home at a fixed interest rate, and when you start paying off the loan, you must pay off the interest as well. Therefore, by the time you pay off the loan in full, you will have paid more than the principal amount. The amount you pay a premium on your loan is nothing more than interest. Therefore, the burden on your loan will increase or decrease depending on the interest rate that the lender decides for your loan. This makes home loan interest rates the most important factor when considering a home loan.

If your interest rate is high, the total amount of the loan repayment will increase and vice versa. Another factor that comes into the picture is the interest rate. Yes, there is only one type of interest rate for home loans. When you get a home loan, you have the option of choosing it based on the type of interest rate offered. This depends on your personal views on financing and your financial plan for the future.

Different Types of Interest Rates Offered on Home Loans

Types of Interest Rates On Home Loans

Fixed Interest Rate

A fixed interest rate simply means that the lender or the bank decides on an interest rate that remains fixed for the entire term of the loan. This gives you the advantage of knowing how much you will pay over the term of the loan, even before signing the loan agreement. The amount of the monthly payment of your loan will remain the same throughout the term.

Floating Interest Rate

A floating rate is a type of interest rate that fluctuates based on market trends. The price can go up or down, depending on the behavior of the market. With a variable interest rate, the total interest you pay can go up or down. Therefore, EMIs will also increase or decrease, accordingly.

Types of Interest Rates On Home Loans

Which home loans should you choose?

Whether you choose a fixed or variable interest rate on a home loan is entirely depends on your understanding of the market. If you are someone who loves stability, hates risk, and has a stable financial plan, then a fixed interest rate will be best for you. However, you should be aware that the fixed rate is slightly higher than the floating rate, and even when the market is in decline, it will not lower your interest rate.

On the other hand, if you take risks and have a flexible financial plan, you can choose to use a floating interest rate. Fluctuations in the market can lower your price and that can be beneficial. However, the price can also go up based on the same fluctuations, causing interest to increase.

Therefore, you must make an informed decision regarding the interest rate you want to earn on your home loan.

Also, read- What is an Overdraft Home Loan