In home loans, a question of utmost importance is whether the borrower should choose a fixed rate or floating interest rate. Before going into the discussion, which type home loan of interest rate you will choose, let’s first get the clear understanding offixed and floating interest rate.
About Fixed Interest Rate
Fixed home loan interest rate does not vary with the changes in financial market. This category of interest rate remains steady through the entire loan tenure. When you choose a fixed interest rate, you can easily make prediction of the EMI’s for your home loan. As this interest rate remains fixed, you can plan easily for re-payment of home loan. With a fixed home loan interest rate, lenders typically charge a higher amount than a floating interest rate.
About Floating Interest Rate
Floating home loan interest rate changes over the tenure of the loan. As, the interest rate in the market goes up or down, the floating interest rate also changes accordingly. When you choose the floating rate of interest, the EMI’s of the home loan are not absolutely certain, owing to the fluctuating nature of the interest rate.
The benefit for opting this rate of interest is when the interest rate goes down, the EMI amount also decreases. With the increase in interest rate, the EMI amount for home loan repayment also tends to increase.
Which One to Choose?
As far as borrower’s aspect is concerned, you must be looking to pick one from fixed or floating home loan interest rate. If you have a loan with a short tenure such as 5 years, opting for a floating interest rate is a better option, as it helps you to get a lower interest rate and thereby, low EMIs. Considering the short loan tenure, it’s expected that for most part of your loan tenure, you would be paying lower EMIs with floating interest rate than the fixed one.
As, fixed rate home loans are available at a higher rate than floating rate, banks are typically offering home loans with floating interest rate to the customers. NBFCs however, are offering home loans with the both fixed and floating interest rate.
If you choose a loan with a long tenure and opt a floating rate of interest, the interest rates may go up and you may have to pay even higher EMI’s than in a fixed rate loan. If this scenario occurs, you may switch your home loan to fixed interest rate to ensure you will be paying a fixed amount towards the loan repayment. Although, there will be charges applicable for switching between the interest rates, but it’s worth it when it comes to paying EMI’s for a long loan tenure.
Choosing a floating interest rate for home loan seems to a right move. If the home loan rate is expected to fall in upcoming days, opting for floating rate is quite beneficial.
Which home loan interest rate, fixed or floating is the best option also depends on your financial situation. When choosing between these two categories of interest rates, you are advised to properly examine the cost aspect of both of these options and then pick the one that suits to your loan tenure.