Time to pick a home loan scheme...Time to pick a home loan scheme

These days, attractive housing finance schemes are being offered that seek to make life easier for homebuyers. However, there are certain
important aspects of personal finance that have to be taken into account before applying for a home loan.
A home loan account and EMIs (equated monthly installments) usually run for a long tenure - at least five years, and over 20 years in some cases. Therefore , it becomes very important to choose the right home loan scheme and plan for other expenditures through the tenure as well. Home loan schemes are classified based on interest rate variations. Here are some of the common home loan schemes available in the market today.
FIXED INTEREST RATE
The interest charged on the loan amount remains fixed under this scheme. Most banks have stopped offering fixed interest rates for entire duration of the home loan. Some banks offer a fixed rate at a rate significantly higher than the prevailing rates. It comes with a clause of variability. These schemes are not feasible.
FLOATING INTEREST RATE
Under the floating interest rate schemes, the interest rate varies with time, based on the market conditions. Usually, the borrower's interest rate is linked to the bank's internal interest rate. The interest on the account changes when the bank decides to change its benchmark lending rate. Usually, you get an attractive deal in terms of interest rates under a floating rate scheme. Borrowers with enough liquidity in hand are advised to go for this.
HYBRID SCHEMES
These schemes offer a mix of fixed and floating interest rates. There are many variants of such schemes available in the market that promise to suit different borrowers' needs. But, it is important to analyse such options, before getting locked into a particular scheme. Schemes that offer fixed rates during the initial few years are comfortable for those who start EMI payment immediately.
Courtesy:- ET Realty dt:- 02-April-2010
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