Choose Schemes That Suit You

Banks offer a variety of home loans. Home purchase loan, home improvement loan, home extension loan, land purchase loan, home conversion loan, bridge loan and balance transfer loan are some flavours.

Depending on your requirement, you can avail any of these loans. To make their products attractive, some lenders package freebies with their products like free property or accident insurance, waiver of prepayment penalty and so on.
Lenders offer a plethora of options for the prospective homeowners. You can choose from numerous schemes that suit your financial needs, age and risk appetite. Fixed, floating, hybrid, step-up , step-down - they are aplenty.

FIXED OR FLOATING?

The first dilemma that pins a borrower down is the choice between fixed and floating rates. In case of fixed rate of interest, the rate of interest remains unchanged for the entire duration of the loan.
This means you do not benefit, even if rates of interest drop in the market. On the brighter side, you won't have to shell out a penny more, even if rates are moving up. Ideal choice that it may appear, it has its own drawbacks.
They come with a reset clause that empowers banks to increase the rate of even a fixed rate loan. Further, these are a few points more expensive than a floating rate loan.
Floating rate of interest fluctuates in sync with the market lending rates. The borrower can end up paying more than he budgeted for, if the lending rate goes up. Floating rates are for borrowers who can anticipate rate fluctuations and stay calm in turbulent times.

HYBRID LOAN

This is a combination of both - fixed as well as floating rates. It is sometimes referred to as partly fixed, partly floating home loan. Under this scheme, a part of your loan is locked under fixed and the remaining is exposed to the adjustable rate of interest - the floating rate. The borrower can decide what percentage he wants to expose to fluctuations in rate and what percentage must be locked as fixed.

STEP-UP LOAN

This is a flexible, innovative product designed specially for young borrowers. It offers varying equated monthly installments (EMIs) spread over the loan's tenure. During the initial years of the tenure of the stepup loan, the EMIs are small. This makes the loan affordable for the young workforce that has started making money and holds tremendous growth prospects.
As the years roll by, the EMI outflow increases. It is assumed that the borrower will grow up the corporate ladder, get promotions and earn high increments. Hence, though EMI increases with time , it remains affordable for the borrower.

STEP-DOWN LOAN

• In case of a step down loan, the EMIs are huge initially. It is meant for borrowers close to their retirement years. These borrowers are at the peak of their earning potential. However, once they retire their earnings shrink.

• In alignment with their earning capacity, their EMI installments come tumbling down.

• In a stepdown loan, the burden of EMIs drops with time.

• Hybrid loans are a safe option for borrowers, as they offer dual benefit of fixed rate loans as well as floating rate loans. The scheme minimises the impact of any adverse changes in the interest rates. At the same time , the borrower can benefit from any favourable changes in the market.

• Weigh your options well and pick a scheme.