Hybrid Home Loan: Reduce the worry of rising EMIs; here's what a hybrid home loan is

Hybrid Home Loan: Taking a home loan to buy a house is common, but fluctuations in interest rates can cause your EMI to rise. In such a scenario, a hybrid home loan can prove to be a good option. Let’s find out more.

Hybrid Home Loan: Taking a home loan to purchase a house is commonplace these days. However, once the loan is taken, EMIs must be paid over several years. During this period, if interest rates rise, the EMI amount can also increase. A hybrid home loan offers a solution by combining the benefits of both fixed and floating interest rates.

With a hybrid home loan, the interest rate remains fixed for an initial period. This means that fluctuations in market interest rates during this time do not affect your EMI. Subsequently, the loan shifts to a floating interest rate. Essentially, it operates on a fixed rate for a certain period, followed by a floating rate.

Launched by Kotak Mahindra Bank

Kotak Mahindra Bank has launched a hybrid home loan. Under this scheme, customers can fix the interest rate for an initial period of 39, 52, or 65 months. Once this fixed period concludes, the loan automatically switches to a floating interest rate.

Consider an individual who takes a home loan of ₹1 crore for 20 years at an interest rate of 7.6%. The EMI for this would be approximately ₹81,030. If the interest rate rises to 8.6%, the EMI would increase to around ₹87,500; at 9.6%, it could reach approximately ₹94,000.

With a hybrid home loan, the EMI does not change during the fixed-rate period, even if interest rates rise. According to an example provided by the bank, a customer could save up to ₹3.46 lakh on a ₹1 crore loan in a scenario where interest rates increase.

What are the benefits?

The biggest advantage of this loan is that the EMI remains fixed for the initial few years. This makes it easier to plan your monthly budget. Additionally, even if interest rates rise, the EMI remains unaffected during the fixed-rate period.

Consider the downsides as well.

If interest rates drop during the fixed-rate period, the customer will not immediately benefit from the lower rate. Therefore, it is crucial to thoroughly understand the fixed-rate tenure, the subsequent interest rate, and other terms and conditions before taking out the loan.