Nowadays, to buy a home of dreams is not an easy path to go
ahead because of rising prices all over India. Home loan is an effortless way
for a person to make the dream come true. There is a need of some amount as
down payment of home just 20% of it. The
left over amount can be paid through home loan depending on the
eligibility criteria. These home loans can be paid back to the bank through
equated monthly installments (EMI) for the tenure period of the loan. Some part
of EMI is for principal component to pay back and other for interest. As a
person keep on paying the EMI the principal amount is reduced, then the
interest component goes down and principal component increases.
The bank offers two
types of interest rate that is, fixed interest rate and floating interest rate.
Home loan with fixed interest rate will remain constant throughout the tenure
period. Some banks have a reset clause of changing the home loan interest
rate after a fixed period ranging from 3-5years. Floating interest rates
varies with the fluctuation in the market. The interest rate can be increased
or decreased.
The second type of home loan is floating interest rate. It
means the person has to give interest rates according to the market. Whenever
the bank will change their base rate simultaneously the interest rate will get
change. The change will be on EMI or tenure period. Whenever bank increases
their bank rate, the EMI will increase. Thus, floating interest rates are more
preferable than fixed interest rate.
