As of now, there are two different kinds of home loans available: fixed interest rate loans and floating interest rate home loans. While both types of interest rates of home loans have their own pros and cons; it is always better if people subscribe to a floating rate loan. Though there’s always a risk associated; it’s only a matter of time and the benefits are undoubtedly higher.
What is a Fixed Interest Rate?
The fixed interest rate is the simple interest rate formula you learned in your school. The interest rate, the time component and the principal component remain the same; and the interest payable for the entire tenor is calculated in one go.
What is the Floating Interest Rate?
The floating interest rate is connected with the market and goes up and down as per market dynamics. For instance, if a home loan availed as per floating interest rate is at 11% and the market conditions improve; the interest rate of loans would go down and the benefits will be passed on immediately. So, taking a home loan at a floating interest rate is a risk but it’s well worth it.
- Initially, the interest rate difference between floating interest rate home loans and fixed interest rate loans is not very high.
- There’s always a chance of the interest rates going well below the present rates. Thus, there’s always a chance of receiving higher benefits.
Bottom Line: Whenever you apply for a home loan, you’ll always be given an option between fixed and floating interest rate loans. It is your duty to inform you about your expectations to the lender in advance.