Buying a home is one of the biggest financial decisions a person makes in their life. After taking a home loan, one has to pay EMIs every month for several years. This EMI may fluctuate if the Reserve Bank of India (RBI) changes the repo rate during the tenure. Not just EMI, a change in the repo rate may also result in a change in your loan term. If you don’t want to take the stress of these things, hybrid home loans can be an option for you.
What is hybrid home loan?
Simply put, a hybrid home loan is a combination of fixed- and floating-rate home loans. In a hybrid home loan, the interest rate remains fixed for a fixed period. During this tenure, you will pay a fixed EMI no matter whether interest rates rise or fall. Once this period ends, the loan gets converted into a floating rate.
Kotak Mahindra Bank launches hybrid home loan
Kotak Mahindra Bank has launched a hybrid home loan, enabling customers to lock their home loan rate for a fixed period and plan these important early years with greater visibility. This facility allows home loan borrowers to lock in interest rates for 39, 52, or 65 months, protecting them from fluctuations in the benchmark repo rate. During this period, their interest rate and EMI remain unchanged even if the repo rate changes, it said.
Presently, Kotak Mahindra Bank is offering housing loans starting at 7.6 per cent.
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How much you can save on a Rs 1 crore loanย
According to Kotak Mahindra Bank, on a Rs 1 crore home loan, a borrower could save up to Rs 3.46 lakh if rates rise towards recent highs.
Kotak Mahindra Bank Head (mortgages) Nakul Saxena said that by allowing customers to lock in their rate for up to 65 months, the Kotak Hybrid Home Loan provides a meaningful planning cushion during the early years of homeownership.
The hybrid home loan is available across India to eligible salaried and self-employed borrowers.
Is a hybrid home loan right for you?
There can’t be a clear answer to this question as it depends entirely on your financial situation and your perception of interest rates. If you believe interest rates may rise in the coming years and want stable EMIs in the initial years, a hybrid home loan may be worth considering. However, if you believe interest rates may fall and want to take advantage of the lower rate quickly, a floating rate loan may be more suitable.ย
Before taking a loan, don’t just look at the initial interest rate. It’s important to understand the fixed term, how the floating rate will be determined thereafter, the spread, the prepayment terms, and how the EMI or term will change if the interest rate changes.
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(This article is for informational purposes only and should not be construed as investment, financial, or other advice.)