A 30 year Fixed Rate Home Loan – Good or Bad?

Are you planning to take a 30 year fixed rate home loan? Did you calculate whether it is going to be beneficial in the long run or not? For a home loan tenure of 30 years the interest rates are fixed as per RBI guidelines. In this case fixed rate interest rate will be less compared to the current one as the tenure will be long. The idea here is to reduce the EMI (Equated Monthly Installment) burden of loan payer and make him/ her financially stable.

Many people think that buying a home with a 30 year fixed interest rate loan is a convenient option. They mostly consider the affordability of monthly payments, rather than the entire cost of the loan. This is a common perception while deciding on home or buying the first car. In case of such loan, banks may change their loan interest rates in every 7-10 year duration to match the financial condition of that time.

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In early 2000, fixed home loan were very popular but later on as the interest rates went down, the floating rate loans got popularity. You can also refer the comparison between fixed and floating home loan for last few years in this article from business standard.

Pros and Cons of a 30 year fixed rate home loan

Now here the point is whether this step will be good or bad from a customer point of view. If you analyse the facts of a long term home loan there are both positive and negative sides of it. But definitely that will vary from person to person and how you play with your money.

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Positives:

1. A long term home loan will definitely reduce the monthly installment and you can save that amount. This will simply boost your financial stability and you can plan something with that saving.

2. You can use your home loan for income tax saving purpose for longer period of time.

3. The amount you save from EMI can be invested for a long term which might help you to create a wealth for future.

Negatives:

1. A 30 year home loan will definitely increase you interest burden for the long run. You have to pay more interest than the lesser term home loan.

2. As this is a fixed rate home loan, so there is always a possibility that floating rates goes down and at that time you cannot take that advantage.

Govt. has already waived of the prepayment penalty from all floating rate home loan products, if the amount is prepaid with your own earning. However, the same remains live in case of fixed rate home loan.

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Now it’s up to you how you will plan your future financial goals and based on that you can decide whether a 30 year home loan is good or a lesser term home loan is fine.

However, the total interest paid over the life of the 30 year loan will be much higher than the total interest paid over the life of the 15 year loan. So if you can afford to go for a 15 year loan, you can surely save huge compared to a 30 year fixed rate home loan. And this is a wise decision too!

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6 Comments

  1. I am going to apply for a home loan and was thinking whether i should go for a 30 year loan or 15-20 year loan but after reading your article i think i should go for 15 or 20 year loan..

  2. Hi, very informative article.
    I am 28 years old and I am searching for good investment options. I just came to know about peer to peer lending as an emerging platform in India and wanted your views on that.

  3. I have taken home loan for 15 years from federal bank floting interest
    Is it advisable to finish my loan before my loan period if I have money… will I get any benefits out of that or shall I continue my loan until 15 years….

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