We all know that taking a decision to buy a house at an early age is considered to be a wise decision. But whenever we think about home loans, we think of equated monthly installments (EMIs), and this is the primary thing every borrower calculate while estimating the monthly burden. A borrower usually calculates his or her home loans EMI by taking into account a fixed or floating home loan annual rate of interest, and tenure. But most of the times, it has been observed that an applicant or borrower gets confused when the actual EMIs roll down as the term equated doesn’t mean that your every EMI will remain same throughout the tenure. A Borrower home loan EMI can change over the course of time, and there are some factors that can influence the EMI. So, if you are also planning to purchase a dream home of your own, it is important to know some key factors that can affect your home loans EMI calculations in the future. A borrower must be aware and familiar with all those essential facts and figures before applying for a home loan to avoid any kind of hassle.
Here are some of the important factors that can affect your home loans EMI –
Type of Interest Rates: Generally, there are two types of interest rates, one is fixed and another is floating rate home loan. The fixed one does not change throughout the tenure of your home loan, as there is no effect of market conditions on it. While in the case of floating, the rate of interest changes with the financial market conditions. In some cases, we have seen that a floating rate of interest is better than fixed, as if the annual rate of interest falls in future, you get the advantage to pay your home loan EMIs at a lower rate of interest. This is not in the case with a fixed home loan as it remains the same throughout the tenure irrespective of market conditions.
Change in Interest Rate: A change in the interest rate can affect your overall planned home loan EMIs in a positively or negatively way. Let’s say if a borrower’s home loan is having a floating rate of interest, then his or her loan EMIs may change, as it all depends upon the market conditions. In India, whenever the Reserve Bank of India changes the lending rate, your home loans EMI tend to change. So, if you think that a floating rate of interest is a risk factor, then you can think of a home loan under a fixed rate of interest. You can always request your lender to make changes in tenure to meet changes in your repayment i.e. EMI payment.
Method of Repayment: The method of repayment totally depends on a borrower, whether you want to choose step-up or step-down. Your repayment potential option is based on the volume of inflow of income. If you are an early age borrower, especially in early 30s, then usually step-up home loans are more convenient for you. Why? Because, you are in the beginning of your career and the income is presume to rise with time in a corporate ladder. Similarly, if you are close to your retirement, then a borrower chooses step-down, because of flexible repayment options.
Hence, these are some of the factors that can influence your monthly budget. There are other factors too, which can impact your EMI calculation like, when you prepay your home loans principal amount, or when you shift lender, etc. which we can’t cover here. Hope this information has been helpful in planning your EMIs accordingly.