Floating Interest Rates vs Fixed Interest Rates: Which of These is Better for You?
Prospective homebuyers usually go through a huge number of options before they zero in on a lender that suits their requirements. Among the many dilemmas they face while opting for a loan, the choice of opting between fixed interest rates and floating interest rates can be quite difficult. This is because these two types of interest rates come with their own set of advantages and disadvantages. Here, we list out the differences between fixed and floating interest rates.
Differences between Fixed and Floating Interest Rates
What is a Fixed Interest Rate Home Loan?
A fixed interest rate Home Loan offers a Home Loan interest rate which remains the same throughout the loan tenure. In other words, the interest levied on the amount you borrow will not fluctuate even if there are drastic changes in the financial market. With this sort of scheme, the majority of your EMIs will go towards repaying the interest while the principal is paid later on in the tenure. In case, a low-interest loan is what you are looking for, financiers like Bajaj Finserv offer Home Loans with 3 EMI-free months.
Advantages of Fixed Interest Rates
- With a fixed interest rate, the interest stays the same through the loan repayment tenure.
- The interest does not depend on the market conditions and is safe from fluctuations. This allows you to accurately budget your income.
- This loan gives you stronger long-term security.
Disadvantages of Fixed Interest Rates
- Even if the general interest rates decrease during the loan repayment period, you will not be able to avail of the benefits.
- A high fixed interest rate can sometimes be too taxing on your income, leaving you with very little savings.
Read this blog post to know advantages and disadvantages of fixed interest rates in details.
What is a Floating Interest Rate Home Loan?
A floating interest rate on a Home Loan, as the name suggests, means that the rate of interest varies with respect to market conditions. This type of interest rate includes a base rate plus a floating component. If you are looking for a quick loan, lenders like Bajaj Finserv offer you housing finance with extremely low interest rates.
Advantages of Floating Interest Rates
- At present, floating interest rates average around 11%, a good 2.5% less than the average fixed interest rate.
- Even if the interest rate rises, it is very likely that it will fall in the near future.
- You will probably be able to save more with this type of interest rate.
- deal for short-term loans.
Disadvantages of Floating Interest Rates
- The EMIs on fixed interest rates may fluctuate each month.
To conclude, both fixed interest and floating interest rates come with their own set of risks and advantages. Before opting for a Home Loan, you need to get your priorities right and choose an interest scheme that will suit your style of financial management. If you are looking to borrow money, lenders like Bajaj Finserv give you the option to apply online for a Home Loan with instant approvals.