Hybrid Home Loan: Taking out a home loan to purchase a home is common, but changes in interest rates can increase your EMI. In such a situation, a hybrid home loan can be a good option. Learn more.
There will be less tension about increasing EMI; know what a Hybrid Home Loan is
Hybrid Home Loan: Taking out a home loan to purchase a home is common these days. However, EMIs must be paid for several years after the loan is taken out. If the interest rate is high during this period, the EMIs can also be higher. In such a situation, a hybrid home loan is an option that offers the benefits of both fixed and floating interest rates.
Hybrid home loans initially have a fixed interest rate for a certain period of time. This means that rising or falling market interest rates during this period do not affect your EMI. After this, the loan switches to a floating interest rate. So, it operates at a fixed rate for a period of time and then at a floating rate.
Kotak Mahindra Bank launched
Kotak Mahindra Bank has launched a Hybrid Home Loan. Customers can initially choose a fixed interest rate for 39, 52, or 65 months. After the fixed term, the loan automatically converts to a floating rate.
Suppose an individual takes out a home loan of Rs 1 crore for 20 years at a 7.6% interest rate. The EMI would be approximately Rs 81,030. If the interest rate increases to 8.6%, the EMI could reach approximately Rs 87,500, and at 9.6%, it could reach approximately Rs 94,000.
With a hybrid home loan, the EMI will remain unchanged during the fixed term even if the interest rate increases. According to the bank's example, a customer can save up to ₹3.46 lakh on a ₹1 crore loan under higher interest rates.
What are the benefits?
The biggest advantage of this loan is that the EMI is fixed for the first few years. This makes it easier to budget each month. Furthermore, even if the interest rate is higher, the EMI is not directly affected during the fixed period.
Understand the disadvantages as well
If the interest rate decreases during the fixed term, the customer will not immediately benefit from the lower rate. Therefore, it is important to understand the fixed term, the subsequent interest rate, and other terms before taking out a loan.
