How does the type of interest rate affect the repayment procedure?

When applying for a home loan, financial institutions offer the applicant with two options of home loan interest rates to choose from, floating and fixed interest rate. A fixed interest means that the interest charged on the loan amount remains fixed during the tenure of the loan. This type of an interest rate is not affected by any fluctuations in the market. In the beginning months of the repayment period of home loan the borrower is paying off more interest than the actual principal amount. Hence this needs to be taken into consideration if the individual plans on repaying the loan in advance at any point. This type of home loan interest is believed to be a safer option for those who do not wish to take any risk and simply wish to pay a fixed EMI every month.

In floating interest however, the interest rate constantly changes based fluctuations in the market rate. Such a home loan interest rate requires the borrower to constantly check for any fluctuations to ensure that they repay the right EMI amount each month. This type of interest rate is ideal for individuals who wish to have a more affordable home loan repayment option. Though there is the risk that the floating interest may be higher, most of the time it is more affordable as compared to fixed interest rates.

The type of home loan interest rate you opt for also seriously affects the repayment procedure for any individual. In the case of fixed rate of interest, the amount to be repaid each month as EMI remains fixed. It is the perfect type of home loan interest rate for those who are looking for an easy to budget repayment schedule. It brings in a sense of security for the home loan borrower.

In the case of floating interest rate, the amount to be repaid each month will change based on the fluctuations in the market rate. Even if sometimes the interest rate does go higher than the floating rate, it is for a short period of time and not the entire tenure. Since the EMIs are constantly changing, the borrower is required each month to calculate the EMI based on the new home loan interest rate. Also, the borrower will be required to make predictions about the interest rate as to the highest it can rise and the lowest it can fall and calculate the EMI for the same. This allows them to prepare in advance if the interest rate charged in a particular month is higher than expected.

Home loan interest rates play a major role in the entire home loan process and hence all borrowers must choose their type of interest rate carefully.