Should you opt for a fixed or floating home loan interest rate

Digitisation has enabled the easy availing of home loan, thereby letting thousands of people to own their dream house. It also serves the purpose of renovation or extending their house portion. The home loan carries a significant loan amount in correspondence with the interest rate, which is also considerably higher. There are two alternate options of home loan interest rate, namely fixed home loan interest rate and floating home loan interest rate.

• Fixed home loan interest rate: Under this home loan interest rate, the rate of interest remains constant irrespective of the changes in the market conditions. The consistency in the rate of interest ensures equal and sorted monthly instalment without the involvement of further terms and conditions in respect of the external affairs of the market.

• Floating home loan interest rate: Floating home loan interest rate is of fluctuating nature. It may change in accordance with the change in the market value of the loan. The rate of interest keeps on changing (either increasing or decreasing) as per the financial scenario of the market. The borrower goes through constant changes in the payment of his monthly instalment.

There are certain differences in the form and nature of the two variants. Each of them holding advantages as well as disadvantages. As per this is concerned, the borrower must go through several key points regarding the choice of either of the interest types.

Let us discuss the basic pros and cons of each of the home loan interest types:

Advantages of Fixed home loan interest rate and floating home loan interest rate

• The basic merit of fixed home loan interest is the continuity of the same rate of interest throughout the loan period. Apart from that, it enjoys the freedom of no indulgence in the external affairs of the market. It is the most effective means to promote budgeting plans, in adherence to the rate, and the amount of budgets can be formulated more conveniently.

• The only advantage of floating loan interest rates is that they come with a relevantly lesser rate of interest, which means the raising of the market value will not affect its rate throughout the loan tenor.

Disadvantages of Fixed home loan interest rate and Floating home loan interest rate:

• The demerits of fixed home loan interest rate are limited in terms of the cases that may prevail upon the changes in the market scenario. Let us assume the case when the market value of the loan is significantly less than the amount you are repaying. Only such an instance put forward some inconveniences in the part of the borrower.

• The disadvantage of a floating home loan interest rate is the occurrence of fluctuation in the monthly installments. It becomes difficult to evaluate the exact EMI amount payable in the following months, thus interrupting the budgetary balance. Moreover, do the lack of consistency, the borrower may suffer loss while repaying the loan amount due to the variance of the amount.

Why opting a fixed home loan interest rate?

According to financial advisers, it is better to opt for a fixed home loan interest loan to keep away the worry of the increment in the loan amount or interest rate repayable on each month. As it is impossible to predict the borrower’s repayment capability, thus making it an inappropriate option of home loan interest to opt for.

Through the specifications based on merits and demerits, it is concluded that the fixed home loan interest rate vulnerably enjoys more preference as compared to the floating home interest.

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