After a homebuyer has researched enough to shortlist and locate a better home of his/her dream, the next thing that will matter is opting for an affordable housing loan
A home loan is a long-term commitment which is active for years and as it affects one’s monthly income for long, opting for a better housing loan rate is the next step.
It is because you will need to repay the home loan EMI which consists of the home loan interest rate along with the principal. Not availing an interest rate type matching your income will not help you in the longer run.
When it comes to the housing loan interest rate, it consists of two types such as floating and fixed rates. Many homebuyers get confused when it comes to opting for a type of housing loan interest rate. In the context of the same, this post will help you decide between a fixed and floating interest rate. Let’s get to know more:
What is a Fixed Home Loan Interest Rate?
As the name suggests, the fixed housing loan interest rate has its interest rate which is fixed and not variable as per the conditions of the market. The loan repayments under this variant of home loan rate mean loan repayment happening in equal EMIs throughout the tenor. The interest charged on the EMIs remains constant irrespective of the market conditions.
In a fixed home loan scenario, the principal gets repaid later and EMIs during the initial years are utilized for the interest repayment.
Pros of the Fixed Loan Interest Rate
- Fixed/constant fixed interest rate all throughout the tenor
- Irrespective of the market conditions, the borrower pays constant EMI
- Fixed interest offers a sense of certainty for the loan’s repayment
What is a Floating Home Loan Interest Rate?
The floating housing loan interest rate includes a base rate including a floating component. It means that if the base rate changes, the floating rate will also vary.
Pros of the Floating Home Loan Interest Rate
- At the time of loan approval and processing, the floating interest rate will always be affordable as compared to the fixed rate. It helps you save money in the home loan EMIs until the time fluctuating rate rises above the fixed rate of interest
- During an event of the further decrease in the market conditions/rate, the floating rate will also go down, and thereby increasing the EMI amount
- Also, if the floating rate goes up the fixed rate, it will only be temporary, and not for the entire loan tenor at all
How to Make the Right Choice?
To summarise, both fixed and floating interest rates have their own benefits and pitfalls. Thus, selecting an interesting type is always a personal choice as one should opt for one depending on his/her current income, existing debts and more. If someone is earning a decent salary and want to pay a fixed EMI, he/she should opt for the fixed loan rates. On the other hand, people earning a higher salary and wanting to enjoy the fluctuations in the market can opt for the floating housing loan interest rate.
You are now aware of the concept and benefits of the fixed as well as the floating type of interest rate and also know which is better for whom. Thus, based on your needs and repayment capacity, you can opt for an interest rate variant. All the best!