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Fixed or floating interest rate — which one to choose?

Essentially when we pick a home loan we have two options of interest rates to select from. By making the right choice you can bring a huge difference to your home loan repayment. A huge amount variance can be noticed between these two choices. There are several loan seekers who also split the amount and choose both the interest rates based on convenience.

Fixed rate:

This interest rate is fixed throughout the tenure and doesn’t change in any given situation. The advantage of this kind of interest rate is that you can plan your expenses on a stable basis without expecting any fluctuations. You can expect no surprises as you are already aware of what you want to pay, when and how much. However, at times this might prove to be an expensive option than the floating interest rate. It will usually cost you 1-2.5% more than the floating interest rates. Fixed rate might be the best-suited choice if you are looking for security and don’t like faltering changes.

Floating rate:

This interest rate is dependent on market change and is prone to mild changes at regular intervals. One of the key benefits of this option is that if the interest rate goes down you have can easily repay your loan amount. But there is also an equal chance that the interest rate might shoot up that can add extra expenses to your loan. It also translates to lot of unstable EMI payment month on month for which you must always stay prepared.

Choose right:

There are several banks who offer loans with time bound fixed interest rates after which the loan will automatically get into floating interest rate mode. It all depends on the loan applicant and the risk level that they are willing to undertake.

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