Ans. In case of home loans, fixed rate of interest is one where the interest rate remains constant during the loan period.While in case of floating interest rate, the interest changes with the change in the market conditions.
Here,are some differences that might help you in deciding which is a better option while taking home loans.
| Basis | Fixed Interest rate Home Loan | Floating Interest rate Home loan |
|---|---|---|
| Meaning | In such a loan Interest rate remains fixed over the tenure of loan. | In such a loan Interest rate varies as and when there is change in market conditions. |
| EMI | Fixed EMI during the loan period. | EMI varies based upon changes in base rate. |
| Rate of Interest | Rate of Interest is 1-2.5% normally higher than the floating rate. | Rate of interest is base rate + floating element and are usually cheaper than fixed rates. |
| Market fluctuations | It does not get benefit of reduced rates i.e. rate is fixed irrespective of market conditions. | If base rate reduces,floating rate of interest also comes down. |
| Certainity | Fixed EMIs ensure certainty and regularity. | There is uncertainty as the interest rates might rise thus increasing EMI amount. |
Fixed rate gives the individual a definite idea of his EMI obligations since there is no variation in the EMIs during the tenure of loan.If fixed EMIs and certainity is your prime consideration,then you can choose fixed interest rate home loan.In this case bank bears the market risk of rising interest,you just have to pay your principal+fixed interest amount regularly.
While,some experts think that floating interest rate is better since it gives you the opportunity to enjoy the benefits of low interest rates based on the market dynamics.But,there are also equal chances of an upward trend in the interest rates that will add upon to your EMIs.
Moreover,if you are thinking to prepay some of the loan in between then floating interest rate will prove more beneficial.
Looking at the overall features of both interest types, floating interest is the one that mostly attracts the customers and seems to be more advantageous over the long run.
Both,interest rates have their own advantages and disadvantages.So,it is you who has to decide what is best for you based on your requirements.
Taking a home loan is a long term commitment and the final decision as to which interest rate to opt should be taken as per your convenience and priorities.
For further details on Home loans refer Home Loans- Facts to Know !
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