Combination Loan: What is a combination loan? Banks themselves do not give information about it while taking a loan.

Today, many people take loans. While taking a loan, you are aware of fixed and floating rate loans, but you may not have heard about combination loans. Banks themselves do not give any information about it. Know here what it is and when you can choose its option.

Today, you can complete many tasks through loans. Banks offer you many types of loans, from home loan, auto loan to personal loan. Most people take home loan to buy a house. Usually, when you take a home loan, banks give you this loan at floating rate. In floating rate loans, interest rates keep changing from time to time. On the other hand, in fixed rate loans, the interest rate remains the same till the end.

But apart from these, the bank also has the option of combination loan, about which the bank itself never gives information to the borrower. If you are also thinking of taking a home loan, then know here what is a combination loan.

Understand what is a combination loan and when should you choose it

You may or may not have heard about combination loan. In this type of loan, a part of the loan is available at fixed interest rate and the rest at adjustable or floating interest rate. This is for those who do not understand whether they should take a loan at fixed rate or floating rate. Combination loan is a middle way for such people. This is especially right for those who are currently repaying other loans and the cash flow is planned to fulfill the loan obligations for the initial 3-5 years.

In such a situation, those people can choose the option of fixed rate loan during this term of 3-5 years. After this phase, you can choose the floating option for the remaining term of the housing loan. You can switch between fixed rate and floating rate housing loans at any time; lenders usually charge a nominal fee for this facility.

When is the floating rate loan option profitable?

If you expect interest rates to come down in the coming days, you can opt for a floating rate loan. In such a case, the interest rate applicable on your loan will also decrease. Another advantage of a floating rate home loan is that when you make a prepayment, you are not charged a prepayment charge, whereas if you want to close a fixed rate loan before time, then the bank charges you a prepayment charge.

When can you choose a fixed rate loan?

The advantage of choosing a fixed rate home loan is that at the time of taking the loan, you know how much EMI you have to pay. Whether the repo rate increases or decreases, your interest rate does not change. If you expect interest rates to increase in the future and therefore want to lock your home loan at the current rate, then you can choose a Fixed Rate Home Loan. The cost of a fixed-rate loan is usually slightly higher than a floating rate loan. If the difference is negligible, then you can choose a fixed rate loan. If it is large, then you can consider floating rate.