Floating Rates or Fixed Rates – Which is the Better Home Loan Rate?

Flexibility in repayment schedules and reduction in the rates of interest have made home loans easily assessable for an individual. The easy monthly installments make it very trouble-free for an individual to own a home. However, choosing from the varied options available is a very complex process. Before applying, a person needs to do a little homework regarding the various interest rates available in the market and which one of it suits his requirements, and can be repaid easily. It is of utmost importance that the applicant must decide whether to go for the fixed rate of interest or a floating interest rate when deciding; as higher the home loan interest rate , the larger the amount you will have to pay every month.

Fixed home loan rates

By fixed interest rate we mean the interest rate that does not change with the market fluctuations and you will be re-paying your loan in fixed equal installments over a period of time. Generally, the earlier part of the tenure in this plan is used to service the interest and the later is used for the principal amount. If you are confident that the interest rates will not fluctuate much during your tenure of the loan you should opt for a fixed home loan interest rate to enjoy the luxury of being locked into a fixed rate for your entire loan term without messing your budget. This brings stability and security along however, the borrower does not get the benefits of the reduced rate but is also saved from a hike in the interest rate if the economic scenario changes.

Floating home loan rates

By floating rate of interest we mean the rate of interest that varies with market conditions. Here, the interest rates are tied to a base rate with a floating element included, which means that if there is a variation in the base rate then the floating interest rate will also vary. An individual opting for this will save a lot of money as floating home loans are cheaper than the fixed interest rates. The interest rates generally do not stay high for a long period, so you benefit from the lower rates due to fluctuations in the market rates. The only difficulty that you can face is the uneven nature of your monthly installments, which are difficult to budget.

When it comes to choosing, a majority of borrowers opt for a floating rate of interest as the difference that looks small at that time is a substantial amount till the end of the whole term of the loan. Finally, it is up to the borrower to decide what suits him the best, but it is advisable to compare the interest rates of different institutions.