The home loan is an essential part of the home purchasing process for an individual. Thus after availing of the loans, an individual has to pay the monthly installments, i.e.:EMI. The full form of EMI is equated with monthly installments. The interest rates are calculated on a cumulative basis or, say, compounded annual basis. The home loans repayment value varies according to the tenure, interest rates, and type of loan, whether fixed interest rates or floating interest rates. It is always recommended that the type of loan taken should always be floating interest rates as the interest rates charged on the loans are lower. The interest rates in current times are on a continuous decline as the Repo rate of RBI is continuously falling. The total cost of repayment to an individual is almost double that of the loan, even at interest rates of 6.50% per annum. If the tenure chosen is shorter ones the borrower can expect to have a lower repayment value. The interest rates for the home loans start from 6.50% per annum, going up to as high as 18% per annum.
The higher interest rates also increase the monthly EMI for an individual. In case of the higher repayment of the loans, the borrower may save money on the interest rates as the bank provides some rebate on the loan’s home loans. The higher the loan amount and higher the tenure availed can lead to higher monthly EMI and higher repayment value to an individual. In case of a good CIBIL score, the borrower can avail of loans at lower interest rates by negotiating with the lenders. The banks also charge processing fees to the borrower as the bank incurs costs in processing the home loans, which a one-time fee is being charged to an individual. The processing fee does not affect the monthly installments of an individual. Thus choosing the right lender is necessary for an individual who charges lower interest rates. In other cases, the lenders who charge exorbitantly may charge far higher repayment charges to the individual. There are various banks or NBFC’s which provide loans at competitive interest rates to the borrowers. The interest rates charged by the banks can be surveyed on the internet to identify the right lenders for the home loans.
Ways in which home loan interest rates affect monthly EMI & total cost:
· Tenure of the loans:
The home loan applicant can avail of loans for a minimum of 5 years and a maximum of 30 years. The tenure of the loans makes a major difference in the monthly installments and the repayment value being charged by the bank over the total tenure. The lower the tenure, the higher the monthly installments, while the repayment value would be lower and the same vice-versa. Thus if the borrower has a comparatively lower salary, then, in that case, the borrower should opt for a longer tenure, which eventually even increases the repayment value for the loans. In comparison, as in the case of a higher salary, the individual should opt for higher monthly installments, thus reducing the total repayment value of the loans and becoming early debt-free.
· Type of interest being chosen:
The repayment value also varies according to the type of loans taken. There are two types of loans interest repayment options that can be chosen, i.e., Fixed interest rates and floating interest rates. In the case of fixed interest rates, the repayment value is fixed. While in the case of the
floating interest rates, the loans interest rates keep fluctuating and thus the repayment value. It is better to opt for floating interest rates as the interest rates are continuously falling, and also, the interest rates charged are lower than the fixed interest rates. Thus the borrower can save money on the floating interest rates.
· Actual interest rates being chosen:
The actual interest rates can vary according to the lender. The bank charges interest rates of as low as 6.50% per annum, which can go up to 18% per annum. Thus choosing the lender who charges lower interest rates can help an individual save money on interest repayment.
We can conclude that lower interest rates and lower tenure can lead to lesser repayment value. The borrower can also become early debt-free through the lower interest rates by repaying the loans faster. Banks also provide a rebate on loans installments been paid early to the bank. Thus repaying higher EMI can help save money for an individual.