Home Loans Home Loan Fixed or Floating home loan which one is better

Fixed or Floating home loan which one is better

Difference between Fixed or Floating home loan

The basic difference between fixed or floating home loan is with respect to the rate of interest and its changes. As the name suggests, in fixed home loan, the rates of interest remain the same for the entire loan period. On the other hand, in floating home loan, the interest rates are subject to change according to the existing market conditions. Let us understand the suitability of these home loans.

It is advisable to do homework regarding home loans and its types. You will be confused whether to opt for fixed or floating home loan. The process begins with evaluating your present and future incomes, analyzing the market situations, pertaining to interest rates and its stability.

You must select a home loan type according to your pre-determined needs. But we will consider both the loan types for understanding its superiority.

Know your income

If you are excellent in budgeting and tracking your income, or have a stable income, then fixed home loans are suitable for you. You have already made a provision for the fixed monthly EMIs out of your home loans. So, whether the market interest rates fall or rise, it does not affect you at all. You are a satisfied customer!

Know the market

But why not think from the viewpoint of the market interest rate? Why the usual certainty and security? Think something out of the fixed interest box! If the interest rates decline, then you will be paying higher interest without any valid reason. The solution is floating rate home loans. If the interest rates fall, you will be paying interest at the prevailing market rate and not the fixed rate.

Yes, there can be market conditions when the interest rates will rise. At that time, you will definitely feel that you should have opted for fixed rate home loan instead. But all times are not the same! Studies have shown that in the situation of higher interest rates, the floating rate can also be lower than the fixed rate.

If the current interest rates are relatively low while making a home loan application, then it is not advisable to jump for floating rate home loan intentionally. Think about the prevailing interest rate and your financial condition first. Then, select your home loan type accordingly.

And suppose you have applied for home loan and the prevailing market rate of interest is considerably high. Then do not make a wrong choice by going for fixed rate home loan. Opt for floating rate home loan. The market conditions may sound to have decrease in the interest rates in the future. Hence, in the future, you will be paying at considerably low interest rates.

Conclusively, it is found that most of the individuals opt for floating interest rate home loans due to its flexible nature. There can be times when you will be paying higher interest but not always. The higher interest rate will not prevail for the entire loan tenure. It will keep on changing with the dynamic market conditions. They are relatively cheaper than the fixed rates of home loan.

1 COMMENT

Vandana Agarwal July 1, 2016 at 3:32 pm

As home loans are so popular in our country the option of fixed and floating interest rates seems a good option. Choosing from the two is an individual preference in accordance to the income and the interest rates in the market. A very informative article explaining both the aspects with their pros and cons.