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How To Calculate Emi For Different Types Of Interest Rate?
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When applying for a home loan with a financial institution, one of the biggest decisions a borrower has to make is choosing the type of interest rate. Financial institutions offer their applicants two types of home loan interest rates. The choice is between fixed and floating interest rate. Each type has its own advantages and disadvantages.
Fixed home loan interest rate offers more security to the applicant. The EMIs charged each month are fixed and hence easy to plan for. The benefit of a fixed interest rate is the fact that it is lower than the floating home loan interest rate. Since the fixed interest charged does not change based on the interest rate, it is comparatively affordable for the applicant.
Floating home loan interest rate offers the applicant the chance to take advantage of a lower interest rate. Since the interest rate fluctuates, the potential of the applicant having to pay a lower amount of EMI is highly likely. This type of interest rate allows you to pay lump sum amounts without having to pay a penalty. There is a risk though, since no individual has control over the market rate, no prediction can be made on the rise or fall of the interest.
In the case of fixed interest, calculating the EMI is extremely simple. The EMI charged each month remains fixed. This is beneficial for individuals who wish to opt for a secure repayment option. With a fixed interest rate, there is no risk and one can plan in advance on how to repay the loan with ease.
In the case of floating interest rate, calculating the EMI amount is more difficult. Since the home loan interest rate changes regularly, no one can predict its rise and fall. This makes it difficult for the borrowers to plan in advance on how to repay the loan. In such cases the applicant must make use of the EMI calculator which financial institutions provide free of cost. The EMI calculator uses the tenure of the loan, the principal loan amount and the home loan interest rate to calculate the EMI for the month. Since one does not know the change in the interest rate, one must predict the changes. Using the EMI calculator the borrower should calculate two sets of EMIs, one based on the highest the rate of interest can rise and another based on the lowest the home loan interest rate can fall.
With this estimate in place, one can prepare in advance to ensure they repay the correct EMI on time.
Author Bio :
The author is a seasonal writer on topics of finance and the housing loans sector. Through her writing, she articulates aspects that are important to people availing facility such as home loan interest rates, documents, home loan eligibility criteria that help to make the best decision.
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