Why Flexible interest rates attract Home Loan seekers

When it comes to borrowing a home loan, you have two main options at your disposal. One is availing a fixed interest home loan wherein the home loan interest rate is fixed throughout the repayment tenure. of the loan. If the Home Loan interest rate changes over the repayment tenure, your home loan interest would not change and remain fixed. The other option is a floating rate home loan. Floating rate home loans have a floating rate of interest which is linked to the Marginal Cost of Lending Rate (MCLR) of the lender. As the MCLR changes, the floating interest rate also changes. As such floating interest rates are good if you expect home loan interest rates to fall in the near future.

Besides fixed and floating home loan interest rates, a new concept of interest rate is now available for a home loan. It is called flexible interest rate home loans or flexi home loans and these loans attract potential home loan borrowers. Let’s understand what flexible interest rates are and what their appeal is –

What are flexible interest rate home loans?

Flexible interest rate home loans work like an overdraft account. The loan account is linked to your current or savings account and you are charged an interest on a daily basis. Interest would be charged only on the outstanding balance of the loan at the end of the day.

How do these loans work?

Under flexible interest rate loans, you know the loan sanction limit but you might or might not use the entire amount of the loan sanctioned. Interest is charged only on the amount of loan which is used. You can also withdraw the unused loan amount and when you do so, the weighted average method of calculation would be used. The outstanding principal of the home loan would then be adjusted for the balance which is maintained in your current account.

Why flexible interest rates attract borrowers?

Flexible interest rates are better for borrowers because of the following reasons –

  • The interest charged is lower since interest is charged on the daily outstanding balance and only on the loan funds actually used by the borrower and not on the entire amount of loan sanctioned
               
  • The loan is easy to maintain and operate since it is linked to your current     account
               
  • The loan is most suitable for borrowers who have invested in an under-construction property. In case of such properties, funds are required depending on the stage of construction. As such, borrowers can withdraw funds when required and pay interest only on the withdrawn balance.
               
  • If the loan account is linked to the borrower’s saving account, the interest earned by the saving account can be used to offset the interest payable on the home loan
               
  • Flexible interest home loans allow borrowers to pay higher EMIs when they have surplus funds which helps in bringing down the overall loan liability

Given these benefits, flexible interest rates are a definite attraction for home loan borrowers. The interest payments are reduced which make such home loans more affordable and suitable for borrowers who are looking forward to to buy an under-construction house property. 

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