It is not difficult to get a home loan these days. However, choosing the right one is a challenging task. It pays to spend some time and effort in understanding the different aspects related to home loans before signing an agreement with any home loan provider. If you are buying your first house, one aspect that could bother you a lot is whether to opt for a fixed or floating interest rate home loan. Read on to know more.
Fixed Interest Rate
In the case of a fixed interest rate home loan, the repayment is to be made in equated monthly installments for the full term of the loan. The interest rate remains the same even if the lenders increase or decrease rates based on RBI’s monetary policy decisions. Initially, a major part of your monthly repayment goes towards servicing the interest. The principal is repaid towards the end of the loan tenure.
- The interest rate remains the same even if the market conditions change
- It is easy to budget as the installment amount does not change
- It provides a sense of security and certainty
- Typically, the fixed interest rate will be 1 to 2.5 percent higher than the floating interest rate
- Fixed-rate home loans do not benefit from any reduction in interest rates
Further, one aspect that you have to confirm with the lender is whether the interest rate will remain fixed for the entire term or only for a specified period of time. Home loan experts opine that it is better to opt for a fixed rate if the economic scenario points to interest rate hikes in the near future.
Floating Interest Rate
As the name implies, the interest rate of your home loan varies according to the market conditions. Typically, floating interest rate home loans are based on the benchmark specified by the lender. The floating interest rate changes whenever the base or benchmark rate is changed.
- Home loans with floating interest rate are always cheaper than those with a fixed interest rate
- Sometimes the floating interest rate will be more than the fixed rate, but it will only be for a short period of time and not the entire repayment term
- In the case of a floating interest rate home loan, the installments keep varying during the repayment period
- It is difficult to budget your expenses because of the periodic changes in payments
Typically, most borrowers opt for home loans with floating interest rates. However, it is entirely up to you to decide as what best serves your needs. Prior to taking a decision on whether you should go in for a fixed-rate or floating-rate home loan, it is highly recommended that you compare home loans offered by various institutions in detail.
If you are still unable to decide as to which is best for you, we can help. At Finwizz, we offer a basket of home loan options because of the relationship that we have built with some of the premier banks as well as financial institutions over the years. Our customer service representatives will clarify all your doubts and advice you on whether to choose a fixed-rate or floating-rate home loan.