Home is where you unwind, relax, and find solace. Owning your dream home isn’t only about physical comfort and emotional well-being. It is also about financial planning and commitment. A home loan offers an easy way to plan purchases and repay through manageable monthly instalments. To make an informed decision, you must be aware of the various types of home loans available, along with different interest rate options.
This article outlines the different types of home loan interest rates and home loan variants. Read on to learn more!
Types of Home Loan Interest Rates
The affordability of a home loan depends on its interest rate. These home loan interest rates are of two types: floating and fixed.
Fixed Home Loan Interest Rate
In fixed-rate home loans, the interest rate remains constant throughout the loan tenure. If you opt for this home loan interest rate, your EMI will remain the same over this period. You can also use Bhulekh Odisha, a government website, to verify the ownership records of properties in Odisha before applying for a home loan.
Benefits
ü Since the interest rate remains constant, you can easily determine how much you will have to pay as interest.
ü If there is an increase in lending rates, your loan won’t be affected by the market fluctuation.
Floating Home Loan Interest Rate
In floating-rate home loans, the interest rate fluctuates per market trends. Due to this, the total interest on your home loan also varies. Consequently, your EMI will also increase or decrease.
Benefits
ü Floating rates for home loans are comparatively cheaper than fixed rates.
ü If there is a decrease in lending rates, you can save on interest charges.
Factors That Impact Home Loan Interest Rate
Certain factors can impact your home loan interest rate. These include the following:
ü Credit Score: A good credit score can fetch you a lower interest rate for your home loan.
ü Interest Rate Type: Your choice of fixed or floating rate will impact your home loan rate.
ü Loan-to-Value (LTV) Ratio: The LTV ratio refers to the percentage of the property value you finance through the loan. A lower LTV ratio can help you get a lower interest rate.
ü Occupation and Income: Your employment status, job profile, and income can impact your home loan rate.
Apart from the interest rate, you must choose the type of home loan you want. Given below are some of the most popular types of home loans.
Types of Housing Loans
Lenders classify home loans based on the purpose they serve. Some of the basic types of home loans are as follows:
Home Purchase Loan
As the name indicates, this loan provides funds for purchasing a home. You can avail it to buy a newly-constructed property or a resale house. It is the most popular type of housing loan in India.
Home Construction Loan
A home construction loan enables you to access funds to construct a house on your land. The sum sanctioned as a loan depends on the estimated construction cost.
Home Renovation/Extension Loan
You can opt for this loan if you need funds for renovating or extending your existing home. This loan can address fund requirements for adding a room, repairing the roof, building a garage and buying new furniture.
Land Purchase Loan
The land purchase loan provides funds for buying a plot where you plan to construct a home. Generally, lending institutions finance 85%-90% of the cost. You will have to arrange the balance amount on your own.
Things to Consider Before Applying for a Home Loan
Consider several things before applying for such a loan. These include the following:
Your Budget and Down Payment
Consider your budget and the amount you can afford to pay as a down payment. Remember that most lending institutions extend around 80% to 85% of the property value as a 30 lakh home loan emi for 20 years.
Your EMI
A housing loan is a long-term financial commitment. Determine the EMI amount you will be comfortable paying monthly, helping you decide your loan tenure.
Your Credit Score
If you have a low credit score, it can result in a higher interest rate and increase the overall cost of your home loan. Try to improve your credit score before applying for a home loan.
Associated Charges
Identify the charges you must pay while applying for a home loan, including processing fees, property verification charges and documentation charges.
Conclusion
Purchasing a home is a big financial decision. A home loan can ease your burden and help you fulfil your monetary requirement. Decide the type of home loan and interest rate that will serve your purpose. Once you do that, you can buy your dream home confidently.
