In India, buying a house with a home loan has become common. Banks offer a variety of loans, including home loans, car loans, and personal loans. Among them, the home loan is the most popular. When you apply for a home loan, banks usually offer you either a fixed interest rate or a floating interest rate.
But there is a third and lesser-known type — the combination loan. Most people are unaware of it because banks typically do not discuss it unless specifically asked. This silent option could help you manage your EMIs better and even reduce the total interest you pay.
Let’s break it down simply so you understand whether this option suits your financial plan or not.
What Exactly Is a Combination Loan in Simple Words?
A combination loan is a mix of both fixed and floating-rate loans. In this, one part of your loan amount is taken at a fixed interest rate, while the remaining part is taken at a floating interest rate.
It is designed for people who want some level of interest rate stability but also want to benefit if the market rates go down.
Let’s say you take a Rs. 40 lakh home loan. You can fix the interest on Rs. 20 lakh and keep the other Rs. 20 lakh on a floating rate. This way, you secure part of your EMIs against future rate hikes, while the rest remains flexible with market trends.
Why Most Banks Avoid Sharing This Option
Banks prefer to offer fixed or floating options only. Most loan officers focus on easy-to-explain options. They rarely talk about combination loans because:
- It involves more paperwork.
- It needs better explanation to the customer.
- It may not bring extra benefit to the bank.
So, unless you ask about it or do your own research, they may never bring up this option during your loan process.
Who Should Consider a Combination Loan Option?
This loan type suits people who:
- Are unsure whether interest rates will go up or down.
- Are already managing other loans and want cash flow security for the first few years.
- Plan to pay off a part of their home loan in the next 3–5 years.
You can fix your interest rate for the first 3–5 years when your finances are tight. Once your income improves or your other loans end, you can benefit from floating rates in the second half of the loan.
How It Helps You in Real Life
- Stability and Flexibility Together:
You won’t feel trapped if rates rise and won’t miss out if rates fall. You get the best of both worlds. - Better Budget Planning:
Fixed rate portion helps you plan your EMIs better for the next few years. It’s easier to manage expenses when you know exactly how much you’ll pay. - Freedom to Switch:
Many lenders allow you to switch between fixed and floating rates by paying a small fee. This adds even more flexibility if your income or market conditions change.
When You Should Choose a Floating Rate Loan
A floating rate loan works well when interest rates are expected to fall in the near future.
Benefits include:
- Lower EMIs when rates go down.
- No prepayment charges, so you can repay early without extra fees.
- Good option for long-term loans as rates may drop with time.
But be careful — if the repo rate rises sharply, your EMIs will also increase, which could hurt your budget.
When You Should Pick a Fixed Rate Loan
A fixed rate loan is helpful when:
- You expect interest rates to go up.
- You want to lock in your current EMI for the full loan term.
- You like certainty and don’t want surprises in your monthly payments.
Do note, fixed rate loans usually charge higher interest rates than floating rate ones. If the difference between the two is small, you can consider going with a fixed rate. But if it’s too high, the floating option might be better.
Should You Mix Fixed and Floating Through a Combination Loan?
Yes, in many situations this makes more sense than choosing one side completely. If your financial plans are clear for the next 5 years but unsure beyond that, the combination loan gives you peace of mind and flexibility.
It works especially well for people who:
- Are in the early stage of their careers.
- Are repaying education loans or personal loans.
- Expect income growth or inflows after a few years.
Why Personal Research Before Home Loan Is Very Important
Banks will not always suggest the best product for your personal situation. You must:
- Compare loan types carefully.
- Ask about combination loans if the bank doesn’t mention them.
- Check prepayment rules and switching charges.
- Match the loan terms with your financial plans.
Always read the terms of the loan before signing. And do not hesitate to ask the bank to explain everything in writing.
Key Points to Remember
- A combination loan helps you mix fixed and floating rates.
- It offers safety in the short term and flexibility in the long term.
- Always compare interest rates and fees before deciding.
- Use this option if you want to manage EMI stress smartly.
- Ask your bank specifically about this — do not wait for them to offer it.
Disclaimer: Loan products, terms, and interest rates can vary across banks and may change over time. Always check with your lender before making a final decision.
Source: Zee Business
