What Suits your Interest? Fixed vs. Floating Loan Rates
A common question many home-buyers face is how to choose between fixed and floating interest rates for Home Loans? In fact, this is by far the most important decision you have to make when it comes to applying for a Home Loan in India. But before you decide which one to choose, lets try to understand the advantages and disadvantages of fixed and floating interest rates.
Difference between Fixed and Floating Interest Rates
Fixed Interest Rate Loans
Essentially, a fixed interest rate signifies that the rate of interest being levied on each EMI remains the same. This means that the amount for each EMI, over the entire duration of the loan, is a constant. You will pay the same amount each month till the end of the loan duration.
|No fluctuations in interest rates based on market conditions.||Relatively high interest rates.|
|Know beforehand exactly how much money you need to pay for each instalment.||Higher interest rates lead to reduced savings in the long run.|
|Increased financial and emotional security:
||Even if the market situation causes interest rates to fall significantly, you will have to continue paying EMIs at the same interest rate used to calculate your first EMI.|
Floating Interest Rate Loans
A loan with a floating interest rate will be dependent on the market situation to set the interest rate on your EMIs. So, each of your EMIs will fluctuate with the market over the duration of the loan.
|Relatively low interest rates.||Uneven EMIs.|
|Even if the interest rate goes up, it will usually never go higher than fixed interest rates.||If the interest rate shoots up suddenly, it may cause an issue with your finances.|
|Depending on the market conditions, floating rates could result in lots of savings over the duration of the loan.||In case you don’t have enough money to pay for your EMI, the lender may foreclose, and you may lose your property and your entire investment.|
If you have a good understanding of market fluctuations and behavior, you should opt for a floating rate on your Home Loan. This move could potentially save you a lot of money which would otherwise go towards covering the interest on a fixed rate loan.
However, a fixed interest rate is the more commonly chosen option in the Home Loan sector. This could be because of the added security that it comes with. It also helps to know, to the exact rupee, exactly how much money you will be spending on your instalments right from the start of the h loan. In the current scenario, fixed rates aren’t too high when compared to floating rates. Bajaj Finserv, for example, offers the lowest Home Loan Interest Rate in India.
The decision on which is better for you will depend entirely on your financial situation and how much risk you are willing to take. Lenders sometimes allow fixed rate borrowers to switch to floating rates after a particular period of time. But if you are comfortable paying a fixed amount, there is no need to switch to floating rates and deal with more paperwork.