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Floating Vs Fixed Interest Rate Home Loan - Which One Is Better?
Fixed Interest Rate: What Is It?
Floating Interest Rate: What Is It?
Which Home Loan Interest Rate Should You Choose?
Buying a home for the first time, especially with a home loan, can be quite a tedious
job. You have to consider numerous
factors before you decide on taking a loan. If you are wondering how to reduce home loan
interest rates, you should
always keep in mind the types of interest rates. This is the case because the type of
rate of interest will ultimately
determine affordability. In this aspect, floating and fixed interest rate home loans are
your two options. In this
piece, you will better grasp the concept of floating vs fixed interest rates.
When the interest rate for your home loan does not vary with the prevailing base rate, it
is called a fixed interest
rate. This interest rate is not affected by the market forces and remains the same
throughout your home loan tenor.
Therefore, this rate is fixed when you opt for a home
loan, and you will be paying the same amount of EMIs every month.
A floating interest rate, also called an 'adjustable' home loan rate, is a type of home loan interest rate that varies
with the prevailing base rate in the market. This rate is associated with the lender's
benchmark rate and moves in close
sync with the market forces. If you go for a floating interest rate, then you will have
to come across a specific rate
at a particular time. The floating rate of interest can change once every three months,
or it can also change once every
As you can obviously see, there are many differences between floating and fixed interest rates. Both interest rates come
with their own set of benefits and drawbacks. Each interest rate will be beneficial for you in a specific scenario.
If you are expecting a rise in the interest rate in future, you can go for a fixed interest rate. Similarly, if the
current rate of interest is lesser than what it was a few years back, now is the time to grab a fixed loan. For example,
suppose the rate of interest a few years back was 13%, and when you are taking the loan, it has fallen to 11%, you
should go for a fixed interest rate.
You can also go for this interest rate if you are comfortable paying the current monthly interest amount. You must make
sure that this amount ranges from 25% to 30% of your monthly income.
You can go for a floating interest rate if you are predicting that the rates will fall over time. This is because if the
rates fall, they will impact the amount or repayment in the same way, and your loan cost will reduce.
Floating rates are set marginally lower in comparison to the fixed rates. Therefore, if you would like to cut interest
cost when taking the loan, then you should opt for a floating interest rate.
If you are thinking of go for a home loan, then we hope that this piece was helpful towards clearing your doubts
regarding the interest rates. Yes, it is quite a tricky choice, but we hope that now you will be able to make an
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