Home Loans: Floating vs Fixed Interest Rates

Interest Rates is one of the most crucial factors that need to be considered when opting for a home loan for buying a home. Just as buying a home is the biggest financial decisions, choosing a home loan with the best interest rates before a home loan is also important.

Just selecting the interest rate is not enough because there are two types of interest rates which are Floating Interest Rates and Fixed Interest Rates. Every buyer who is opting for a home loan has to choose between them. But what is the difference between these two rates?

Fixed Interest Rates: Those who opt for the Fixed Interest Rate have a chance to repay the loan in fixed and equal installments depending on the loan tenure. The good thing about this type of interest rate is that it won’t change when the financial market changes. So if it’s foreseen that the market will rise or fall then the buyer can choose to fix the interest rate as per the preference to plan a better budget.

Floating Interest Rates: The interest rate is dynamic and changes according to the market trends. However, the floating interest rates are comparatively cheaper than fixed interest rates. Floating Interest Rates are 1%-2.5% cheaper than the fixed rates. However, as the market changes the rates changes accordingly and makes it difficult to plan a budget.

A buyer can still choose to convert from a fixed interest rate to floating interest rate and vice versa, however, a conversion charge of 2% of the loan is charged by the lenders.