Fixed Vs Floating Interest Rates For Housing Loans

This debate is a common one among most home loan borrowers. Honestly, they both have their merits and demerits. You may wonder; how do you then select a strategy for a future that you can’t definitively predict? How will your profession or job shape up eventually? What kind of gains will your investments offer? Without a realistic understanding of these details, selecting the ideal home loan interest rates from among fixed or floating rates can be tough, and should not be treated as a random part of the house loan package. There are, however, three important factors that will affect your home loan rates.

* Home loan rate fluctuations

The RBI regulations, the market changes and the changes in the economy (local and international) affect floating interest rates whereas the fixed interest rates remain constant for a pre-determined period of time. Floating interest rates can increase or decrease and you may pay more or lesser EMIs when compared to the fixed rate counterpart. You cannot foresee specific details; however you can benefit from fixed rates if the floating rate escalates. You can also benefit from floating rates if they sink down. Keep that variation in mind before making the choice.

* Higher interest rates

Fixed rates are higher than floating rates. So, the question is simple. Will you like to pay more EMIs every month to avoid the fluctuation? Do you have enough funds and self discipline to pull it off? Is it a smart decision, a lot of people wonder, to take up additional responsibility? Can you pay more than the floating home loan rates for the next 30 years? Yes, the interest rates will not stay the same for next 30 years. Most lenders adjust the rate after 3 to 10 years, based on the agreement consented to by both the parties.

* Financial management

Lenders are never at a loss. Fixed interest rates on housing loans always place their rate of interest higher than the conventional floating rates of interest. As a borrower, you can do little to avoid the risk. This is an important factor – can you afford to pay this extra charge for the home loan tenure? Does it fit in your monthly cash flow? Most people will need much higher monthly earnings to afford the fixed home loan rates in India .

If you consider these three factors in detail, you can hope to understand how you want to take the home loan. So, take a look at your financial planning and make the best possible “long-term” decision for your family.