Go hybrid to manage loan see-saw loan rates

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Karthik Reddy, an IT engineer, has signed a deal to buy a flat in Bengaluru. His financial advisor has advised him to take a hybrid loan. But Reddy has no idea how a hybrid loan works and will it be beneficial?

Let us see what are these loans and how they work.

When it comes to home loans, people often get confused. They don’t know what to do and what not to. Whether to take a loan at a fixed interest rate or at a floating rate. Hybrid loans can prove to be a good option in solving this confusion. You can opt for hybrid loans in  today’s era when  interest rates are being constantly revised.

To overcome this confusion, banks are offering the option of hybrid loan  at a fixed rate or a floating rate. Under this, banks charge interest at a fixed rate for one to three years. After this, the floating rate is implemented. Interest rates have been rising in the country since 2022. The period of increasing interest rates lasts for one to two years. If Reddy takes a hybrid home loan now, then for the next three years, he will not have any concern even if loan becomes further expensive. Going forward, if the process of falling interest rates starts, then he will also get the benefit of cheaper loans.

In the current situation,  hybrid loans can prove to be a better option. Currently, all the major banks and finance companies of the country are offering the option of hybrid home loans.

Under hybrid home loans, Some financial institutions also offer the option  to choose how much amount customers want to pay at fixed rate and how amount at floating interest rates. Those who do not want to take risk generally prefer to take up to 75 percent of the amount on fixed loans, while 25 percent of the loan amount on floating rate. Similarly, those who want to take advantage of the fall in interest rates should take up to 80 percent of the amount at floating rate and the rest at fixed rates. However, this option is  less popular.

Amit Kumar Tanwar, banking expert and founder of Loan4MSME, says that those who are unable to decide whether they should take a loan at fixed interest or at a floating rate, hybrid loans are a good option. The cycle of interest rates changes after a gap in the market. If interest rates start falling after one to two years, then, people will get the benefit of cheaper loans. Tanwar says that if hybrid loans have a fixed rate of three years and interest rates start falling after two years, then, people will start getting the benefit of cheap loans. If the interest rates do not fall, then the customer can shift his loan to another bank. Even though some money will be spent in the balance transfer process, but he will still get the full benefit of cheaper loans.