Both fixed rate and floating rate have their advantages and disadvantages. Here we have told what is the difference between these two and which of these options can be better.
Home Loan: Home loan interest rates are at their lowest level in many years. In such a situation, many experts believe that this is a good time to get the best deal on home loan. Before buying a home loan, it is not enough just to know what is the interest rate and how much EMI you will have to pay for it. The home loan repayment process takes a long time, so it is important to fully understand the features and options that come with a home loan so that you can get a better deal. One question that comes in the mind of home loan buyers is that fixed rate or floating rate is better for them. This decision should be taken with caution, as it affects your financial condition. Both have their advantages and disadvantages. Here we have told what is the difference between these two and which of these options can be better for you.
What is fixed interest rate
Fixed interest rate is a rate that does not change with the market conditions. In a fixed rate loan, the interest rate is fixed at the time of taking a home loan and this rate remains till the end of the tenure of the home loan. This means that if you are going to opt for a fixed rate, then you can easily estimate your EMI. It also makes it easy for you to make your budget. Apart from this, you can easily plan for home loan repayment when the interest rate remains stable.
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When to choose fixed interest rate
The point to be noted here is that the cost of a fixed rate loan is usually slightly higher than that of a floating rate loan. If the difference is huge, you can also opt for a floating rate loan. But if they are almost equal or the difference is very less, then you can choose either of the two, assessing your situation and needs. It is better to choose when the interest rate is low while buying a home loan.
What is floating interest rate
When buying a home loan under a floating interest rate, your interest rate fluctuates more or less with the market conditions. Under this, you cannot estimate your EMI in advance in a home loan. The big advantage of floating interest rate is that when the interest rates are low, you have to pay less EMI in this situation. However, if the interest rates increase, you will have to pay more EMI in it. However, in case the home loan interest rate increases frequently, you can also request your lender to extend the tenure.
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When to choose floating interest rate
If you think that the interest rates will fall in general over time, then in such a situation, you can opt for a home loan with a floating rate. Due to lower interest rates, the interest rate applicable on your loan will also fall in future. If you are well versed with the real estate market, then it would be better to opt for a floating interest home loan. Also, opting for this option can prove to be beneficial if you are expecting that the home loan rates will come down soon. Also, taking a floating interest home loan is beneficial as you do not have to pay any part-prepayment or foreclosure charges as an individual borrower.
There is also the option of combination loan
If you are finding it difficult to decide which option would be better for you, then you can also opt for a combination loan. Some part of it is fixed and some part is floating. Generally, it is difficult to predict what the future home loan rates will be. Loan interest rates may not change as per your estimate. In this situation, a big problem can arise in front of you. However, there is no need to worry too much about it. You can switch between fixed rate and floating rate loans at any time, if you wish. However, you will have to pay a nominal fee to the lender to make the switch. Choosing between a fixed or floating home loan interest rate depends on your financial condition. Therefore, you have to choose which option can be better for you.
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