Fixed or Floating Interest Rate?

This is an obvious and the first step towards understanding how you can opt for the best home
loan. The rate of interest influences the EMI and the total interest paid at the end of the tenure.
There are two types of interest rate levied in home loans. They are fixed and floating interest
rates. A fixed interest rate loan is when the interest rate remains unchanged throughout the
loan tenure. This also means that your EMI amount will remain the same every month.

As for the floating interest rate home loan, the interest rate keeps fluctuating as per the market
and hence there could be a change in your EMI amount or the tenure. However, you need to
note that if you choose a floating interest rate linked to Prime Lending Rate (PLR), the tenure
will either increase or decrease as the bank will not touch the EMI. Usually floating interest
rates are higher compared to a fixed interest rate.

Processing and Pre-Closure Fees

Before your home loan is processed, certain documents are required to be submitted which are
verified and processed by the bank. For these services, the bank charges processing fees.
Processing charges can vary from bank to bank depending on the loan amount. Bank can
either charge a fixed amount or a percentage on the loan amount.

So, if you’re comparing home loans, the processing fees needs to be considered before you
choose one. Usually during a festive season or during the financial year-end, banks and
lenders offer competitive home loans with attractive discounts or offers on processing fees.

The other charge is the pre-closure fee. Banks and lenders usually set terms and conditions for
pre-payment of the home loan. You must verify the terms related to pre-closure of the
outstanding amount, loan balance transfer, pre-payment of a part or full amount of the home
loan.