One of the major dilemmas of home loan borrowers is whether they should opt for fixed or adjustable rates. Finance gurus have already predicted that the minor economic discrepancies of 2015 are going to assume monstrous shape in 2016. So, there is the obvious fear of inflation looming large in the horizon. What will happen in case of inflation? Job loss? Pay cuts? What happens if the rates go up at the time of inflation? While the present economic crunch is one of the foremost reasons why a section of borrowers is apprehensive of opting for variable loans, the news of the banks cutting the rates of interest almost every other day, has kept a few borrowers hooked to loans with variable rates.
Home loans are long term commitments. A loan with fixed rate of interest offers you a sense of certainty though there is the obvious possibility of not being able to take advantage of rate dips. So, as a borrower you would definitely like to educate yourself about the benefits of home loans with fixed rates. Read on in order to explore.
Situations when fixed rate home loans turn out to be beneficial for borrowers
Fixed rate home loans are ideal for those who are just comfortable with the current EMI they have to pay. If your current EMI accounts for less than 40% of your monthly income you will (most likely) not find it difficult to repay your loan. If you are not sure whether your current fiscal situation will allow you to save enough to accommodate possible rate hikes in future then you should stick to your fixed rate home loan.
Fixed rate home loans are an ideal choice for borrowers who have a lot of other financial commitments- because they are not likely to be able to afford future spikes in rates.
It is not really a good idea to settle for a home loan with variable rates if you’re not planning to prepay the home loan. There are some borrowers who choose to prepay the loan when the rates go down.
Are you well adept at reading future fiscal possibilities from the present financial situation? Are you someone who religiously follows financial news and are able to come up with near-accurate predictions of the consequences? Do you think that the rates will go up in the near future? If yes, then you obviously should not opt for variable rate home loans. Should you settle for them if you think that the rates are going to decline shortly? Yes, but only when you think that the rate dip stays for a fairly long time and not shoot up drastically just after one or two months of its introduction.
Things to consider while obtaining fixed rate interest
Irrespective of whether you’re settling for fixed or variable rate home loan, you should always be prudent enough to check the credentials of the lender thoroughly before getting them on board.