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    Home»Finance»Key Differences Between Fixed and Floating Interest Rates
    Finance

    Key Differences Between Fixed and Floating Interest Rates

    Clare LouiseBy Clare LouiseJanuary 22, 2020Updated:January 24, 2020No Comments3 Mins Read
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    In India, home loan interest rates are of two types – fixed interest and floating interest. Both interest types have their own unique pros and cons. Read on to know more about the difference between the two.

    When it comes to availing a home loan, the interest rate is one of the critical factors that influence the borrowing decision. Taking a home loan is probably one of the biggest financial decisions you would make in your life, and it is a long-term commitment. The interest rate should be competitive, and the EMI should be affordable.

    In India, most lenders offer home loans on either fixed interest rate or float interest rate. When you apply for a home loan, you can choose either of the interest types. But, before you decide, you must know the difference between the two.

    Fixed Interest Rate

    In the fixed internet rate, as the name suggests, the interest remains the same throughout the home loan tenure. One of the significant advantages of a fixed rate home loan is that it is not affected by the market fluctuation or changes in the Indian financial trends. Another benefit of a fixed rate home loan is that since you know the exact payout, you can plan your finances accordingly. The fixed-rate home loan is an ideal choice if you are particular about the budgeting and prefer to plan your repayment with a fixed monthly amount.

    While there are many benefits of fixed home loans interest rate, the major drawback is that the interest rate is generally higher than the floating interest rate. Also, when the market condition is favourable, and the interest rate decreases, you will not be able to take advantage of the reduced rates.

    Before you sign the loan paper, you must read the fine print to check if the fixed rate is for the full duration or only for the initial few years. If you foresee a rise in the interest rate, it is best advised to choose the fixed-rate home loan option. Generally, the lenders in India offer fixed rate home loan only for a few years, and after that, the interest is revised according to the current rate. In such a scenario, a fixed rate home loan may not be beneficial in the long run.

    Floating Interest Rate

    If you opt for a floating interest rate home loan, the interest varies based on the existing market condition. This means if the base interest rate changes, the interest rate will vary. One of the significant benefits of floating rate home loan is that they are cheaper than fixed interest rate loan. Even a small difference in the interest rate can help you save a lot in the long run.

    Due to the fluctuating nature of the floating rate home loan, the monthly EMI amount will vary throughout the entire loan tenure. This can make it difficult for you to make a budget for the loan repayment. Also, if the market condition is bad, and the interest rate increases, you may end up paying more than you are comfortable paying every month.

    So, choosing a home loan interest rate is a personal choice. It would help if you decided by assessing your current and future financial condition. If you prefer to plan the repayment well in advance and do not want to leave anything to chance, you must opt for a fixed rate home loan. Irrespective of the type of home loan interest rate you choose, make sure to compare the loan offers from different lenders and choose the one that best suits your needs.

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    Clare Louise

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