Is floating interest rate a risky option?

There are two major types of home loan rates which financial institutions offer their customers namely, fixed interest rate and floating interest rate. A fixed interest rate is believed to be a comparatively safer option as during the entire tenure of the loan the EMI required to pay each month remains the same. In the case of floating interest rate however, the interest charged keeps on changing. The reason being that the interest charged is subject to change based on fluctuations in the market rate. This makes the interest charged unpredictable. A floating interest rate is not necessarily a risky option however it is important for a borrower to decide what type of interest they should choose based on their needs and expectations. Here are the important details about the floating interest rate that every home loan borrower must be aware of:

* The borrower is required to calculate the EMI every month based on the changes in the home loan rates in the market.

* The floating home loan rates are not ideal for individuals who aim for predictability and security in the home loan repayment process.

* The floating housing loan interest rate is a cheaper option as compared to the fixed rate of interest financial institutions charge their home loan applicants.

* This type of a home loan rate can pose a slight risk simply because the individuals cannot always predict correctly the changes in the interest.

* Fluctuations in the market rate cannot be controlled and hence the individual will have to pay the EMI based on the changes in the interest rate.

* There are certain times when the floating housing loan interest rates will be higher than that charged by the financial institution as a fixed rate of interest. In such circumstances the borrower must not worry as the change is not permanent for the entire tenure of the home loan.

In the end the floating home loan interest rates of India are simply another option provided by financial institutions for their customers. The level of risk factor for this type interest depends on the type of individual applying for a home loan. If the borrower prefers to plan their finances carefully and wishes for security, a floating interest rate will be a risky option. However, if the borrower wishes to get a more affordable interest rate then the floating interest rate will not be a risky option. The decision lies with the home applicant themselves. All home loan applicants should choose either fixed or floating interest rate based on their expectations from the home loan and its repayment process.