Are you still confused between the fixed and floating interest home loans? Go through this and get an idea about which type of loan suits you the best.
The interest rate remains fixed in fixed rate loans. In addition to a regular fixed rate loan where the interest rate is constant throughout the loan term, there are variants available that allow you to set your interest rate for specific periods of 2, 3 or 10 years and are available at any point in time with the lender’s right to reset.
Fixed rate loans provide you an idea about what your repayments will be right from the time of applying the loan. It also provides you confidence to accurately plan your finances. Fixed rate loans provide a reasonable measure of predictability of your loan tenure. Fixed Rate Interest Loans are mostly priced higher than floating rate loans.
People should choose fixed rate loans in the following circumstances:
Floating rate home loans which are also commonly known as adjustable rate home loans are usually linked to the lender’s benchmark rate which changes with the market interest rate. The interest rate changes if there is a change in the benchmark rates.
The interest rates of floating rate loans changes at specified intervals. It changes every quarter or half of a financial year depending upon the date of the first disbursement of the loan. If market rates change during the review period, your interest rates will also be adjusted higher or lower as per need. The tenure of the loan that gets re-adjusted to account for the changed interest rate in cases of such rate change. Your remaining loan tenure is extended if the rate increases. This is basically done to prevent frequent EMI changes that may affect your cash flow. But if you want to revise your EMI instead of the loan tenure, you may request the lender.
You should choose a floating rate home loan in the following circumstances: