Can You Always Afford Floating Home Loan Rates?
This is one question that many people consider closely. Floating home loan rates, for the most part, are a major concern for potential home loan customers for two main reasons:
• Wider market affects the interest rates.
There are several aspects that determine the floating interest rates for housing loans. Select organizations play a key role in influencing them; such as the Reserve bank of India, International and Local markets such as NASDAQUE or BSE, etc. How do they actually affect the home loan interest rates? The RBI can change the rules and regulations, which in turn will affect the banking operations. Fluctuations of the money market can affect the entire economy, which in turn affects the availability of funds and the housing loan interest rates for customers .
• There can be potential threats.
You cannot anticipate these changes. Worst of all, you cannot control them. If your interest rates lower, you will be happy as a customer. However, if there is, for any reason, an increase in the home loan rates, most consumers may not be in a position to afford the growth in the EMIs easily. The bottom line is, when you choose floating interest rates, you consent to the possibility of these fluctuations.
So, the reality is that it can be a hard road ahead. When you opt for a home loan, the typical tenure of the loan is 20 to 30 years. No one can anticipate the long term changes in the RBI policy, the Indian economy or the lending policy of your lender. You are taking a risk – the size of the same depends on you, though.
How to afford floating rates for home loan?
While it is a risk, the rates are manageable too. Home loan rates in India are always going to vary. Hence, you must take certain strategic actions to stay ahead of the game.
• Ask for the strategic housing loan duration and the interest rate. You should negotiate the details well enough so that your EMI is 30% of your monthly earnings.
• Use the no-prepayment changes clause to your advantage and repay the largest part of your loan when you can.
• Do not ignore better interest rates during the first 5 to 10 years of the home loan duration. If a lower interest rate opportunity is available, then go for a home loan balance transfer. It is a great decision in the long term.
• Understand that there is a possibility of a home loan rate hike over a period of 5 to 10 years. You must stay ahead of this potential landmine by increasing your earnings by investing your savings into the right financial products.
