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21 August 2011

With Such High Home Rates Which Repayment Schedule to Choose?


Home loans have a high interest rate and we all know that the total value of the house increase much more than the original value of the flat as you are paying high interest amount every month.  The rates of property every where is high and the buyers have to shell out large sums every month as EMIs towards repayment of their home loans. Selecting the right loan repayment schedule is very important to make the journey of your home loan easy.
Interest rates are high and now that property rates have reached their peak, as understood, it is advisable to go in for a home loans offered at fixed or floating rate of interest. If the rates of interest are low and there is a potential of interest rates increasing in future then you must go in for a fixed rate of interest as you will get a home loan on a lower rate of interest and this will be fixed for at least say three years or till the bank changes its policies (I have mentioned facts about fixed rate of interest in another post). So you will have the benefit of getting a home loan on a lower rate of interest and can enjoy this even when the rates of other home loan rise due to inflation, at least for some tenure of your loan.
In case of market crash all the values drop and your home loan rates also may drop. So here in this case if there are lower rates of interest on your home loan then you can go in for a floating rate of interest. This will give you the benefit of getting your home loan at a lower rate of interest and also in future as the market rises and your bank increases their interest rate on loans offered you can also accommodate the higher EMIs accordingly. This only when you are assured that the loan rate shave reached bottom line and will not drop any further.
Usually the rate change is due to cost rise in funds and other market rates. Every few years this rates keep on changing, either they rise or drop according to the market rates. This affects the EMIs and they also keep increasing or decreasing according to the change in rates of interest. A good borrower will consider the long term decision and survey the market trends and then choose the repayment schedule judiciously. A home loan is a long term decision involving a period of ten to fifteen or twenty years and you have to find out the best possible repayment option for the home loan.

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