Types of interest rate options offered to Home Loan applicants

One can easily get a home loan now a days. However, when it comes to choosing the right rates for the loan, one needs to consider the various influential factors affecting it. Each of these rates affects the other rates, therefore it is important to choose the right rates. One of these factors is the home loan interest rates.

Out of the options that are available, fixed rate and floating rate are the available options. Let us see which option is better:

Fixed interest rate

In the home loan, one can opt for fixed interest rates. Through this interest rate, the repayment of the home loan is fixed in equal instalments until the tenure period. The interest rate in this situation does not change, even with the changing market conditions. This is one of the benefits of this type of home loan interest rates. During the initial stages of the loan repayment, majority of the monthly payments will be used as payment for the interest. The latter half of the tenure will be used to pay off the principal amount. A fixed-rate home loan is excellent for those who want to budget their monthly payments for this loan. This ensures that the applicant has a fixed monthly repayment schedule, especially since it offers the luxury of a fixed schedule. Additionally, it also ensures a sense of certainty and security.

Floating interest rate

Through the floating interest rate, the repayment of the home loan is in accordance to the current market conditions. Through this form of home loan interest rates, the interest rate is tied to a base rate plus a floating element thereof. Therefore, if the base rate fluctuates, the floating rate will also vary. However, there are plenty of benefits and risks with this type of interest rate. One of the biggest benefits an applicant can benefit from the floating rate is that they are cheaper than fixed interest rates. Therefore, if the market conditions are offering a low interest rate, one can easily save one’s funds when paying off the loan. Additionally, if the floating rate increases over the fixed interest rate, there is a high possibility it will not last throughout the entire repayment tenure. The interest rates will surely fall over a long period and, thus, the floating interest rate brings a lot of savings to the applicant.

Both types of interest rates offer different benefits that are suited to applicants with different financial profiles. At the end, one must first decide which type of interest rate is applicable to one’s requirements before opting for it.