If you are caught in between choosing a home loan option, whether to opt fixed interest rate or the floating interest rate, you can comfortably opt for hybrid loan. Predicting the interest cycles will be a difficult task especially when the economy is not in shape. In such situations, hybrid loan may be the perfect solution in order to help you enjoy the benefits of both the interest types.
Eligibility for the hybrid loan
Under the hybrid loan process, one can enjoy the combination of both fixed as well as the floating rate of interest on your home loan. Under such arrangement, the lender will provide the fixed interest rate for the first three to five years of the loan tenure by keeping the EMI amount fixed for the same period. The outstanding amount will then carry a floating rate of interest.
Hybrid loan will be ideal especially for the one who cannot afford unpredictability in their monthly expenses in the first few years. If the monthly outgo is fixed for the first few years, it will help you manage your money flow and spending better and save money. In the due course of this period, the borrower is expected to grow in their corporate career when they would feel the ease of affording the floating interest rates which will also increase their EMI.
Lender’s take
Various lenders have different processes to approve hybrid loans. Take extra care to understand the entire process and every aspect of it. Ask you relationship manager the details on the foreclosure as some banks allow you to foreclose the floating rate component in the rising interest rate without a re-payment penalty whereas other banks charge you a penalty for the same.
In other case, you may want to foreclose the fixed part if the interest rates are decreasing. Check if the penalty is applicable for the same. In the same manner, banks will also offer you to convert fixed rate to floating rate if the interest rate cycle dips or vice versa. However, a fee is applicable for the same situation and you got to know about it.
For those who keep an active track of the interest rates, hybrid loan will be the apt one to opt for. Though the banker can enforce it, do not forget that the EMIs are slated to rise later and at that point you must be in a position to afford it. In case of a hybrid loan, if the cap and the margin are fairly low, the best step is to opt for it.
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