Your home loan interest rates depend on several factors, MCLR being one of the most significant one. Based on the MCLR, you can choose between two types of interest rates – fixed-rate home loan and floating rate home loan.
Choose between the type of rates depending on your risk appetite and knowledge on the volatile market. You can also consider the factors mentioned below to find out which will be most beneficial.
The EMIs on advances availed at a fixed interest rate remains unchanged throughout the tenor of the home loan irrespective of any change in MCLR. Whereas, EMIs on advances availed at floating interest rates changes as and when MCLR alters.
Floating interest rates are 1.5% to 2% lower than fixed interest rates.
You can enjoy a reduction in rate if you opt for a floating interest rate which is not possible in case of a fixed rate home loan.
Fixed interest rates can be a profitable option if a borrower considers that the rate of interest will increase in the upcoming years. It is one of the most important effects of MCLR on a line of credit.
Advances availed at a floating interest rate do not attract pre-payment or foreclosure charges.
Planning your finances is convenient if advances are availed at a fixed interest rate as your EMI amount will remain the same throughout your loan tenor.
However, before you choose the type of interest rate, analyze the current scenario of the financial market and then make a decision. In case you wish to choose floating rates, it is advisable to do so if you hold financial stability.
Additional Read: Know Which Home Loan Is Better: Fixed or Floating
