Getting a home loan is easy. A number of banks and financial institutions are attracting prospective home buyers with competitive interest rates and a host of added features like 0% processing fees and nil prepayment charges, making this the best time to avail a home loan.
As a home loan seeker, your primary concern will be the interest rate that is charged. Home loan rates vary among banks and to choose the best option, you need to do a bit of homework and identify the bank that demands minimum documentation, has a quick turnaround time in approving your loan such that you can go ahead with buying the home of your choice.
Types of Interest Rates on Home Loans
Home Loan rates are of two types: fixed rate loans and floating rate loans. If you choose a fixed rate home loan, you pay a fixed rate of interest all through the tenure of the repayment. When the interest rates are showing an upward trend, a fixed rate home loan is the best choice. You are also certain of the EMI dues, which allows you to plan your cash flow well in advance. A major drawback of availing a fixed home loan is that you end up paying a relatively high percentage of interest.
An alternative to fixed interest loans is the floating rate loan. The interest rate is dependent on market conditions and are tied to a base rate plus a floating charge. Floating rate loans are generally cheaper than fixed rate loans, but they also have their share of drawbacks. The varying interest rates can make it difficult for you to manage your cash flows. Furthermore, if the interest rates display a spiraling trend, you will cough up an exorbitant sum as interest payment.
The latest addition to the home loan market is the flexible loan. With loan takers having no control over the interest rates, home loans offered at flexible interest rates are a welcome option.
How Does a Flexi Home Loan Operate?
A flexible home loan account is linked to your current account. Nicknamed as ‘smart loans’ , your loan account works on the same principles of an overdraft account. Just as you pay interest on the daily outstanding balance in your overdraft account, the interest on your Home Loan account is charged only on the outstanding balance on a daily basis.
Based on the loan sanction limit, you have the flexibility to withdraw unused funds from the loan account. The weighted average principle is applied and the outstanding principal amount is adjusted for the balance kept in the current account linked to the Home Loan.
A flexi home loan is particularly beneficial for buyers who have invested in an under-construction property where the payments have to be made based on the stage of construction. So, instead of using up the entire loan in one go and paying the high interest, you withdraw only the instalment amount that is to be paid- thus saving on the interest outflow.
Advantages of a Flexi Home Loan
There is a substantial saving on the interest when you opt for a flexi home loan. With the interest being charged only on the daily outstanding balance, a higher balance in your linked account will bring down the quantum of interest payment significantly. Your savings in the account will also earn interest which can be set off against the interest payable on the flexi home loan. The net effect – your interest costs come down and you can even bring down the repayment period.
Flexible Home Loans are indeed a welcome move for home buyers. They are best suited for those who have higher disposable income and can afford to pay more than the stipulated EMI. Flexi Home Loans enable you to make the optimum use of your surplus funds.
A word of caution – Though flexible interest on Home Loans does seem a not- to- let-go option, it does have its share of pitfalls. Firstly, the interest rates on flexi Home Loans is definitely high than the regular. Also, there could be additional charges which you do not have to pay on the normal Home Loans. So make sure you clear out any doubts you have with your lender before actually availing of a Home Loan.
For those of you who want to own a home, reap the maximum out of the surplus funds and save on high interest outflows, a flexi Home Loan is indeed the best option.
About the author: Anamika Verma writes on various types of financial loans and has a vast experience as a financial advisor. Her expertise on financial issues is well sought after and she is known for her in-depth knowledge on topics such as debt management, liquid assets, mutual funds etc. She has written more than 1000 blogs on topics related to home loan, business loan, doctor loan, EMI finance, gold loan and loan against property and shares. A post-graduate in finance management , Anamika loves to travel or cook in her free time.