Home Loan – Fixed vs Floating Interest Rate – Which option should you opt for?
Home loan borrowers have an option to take their loans at either Fixed Rate of Interest or Floating Rate of Interest. In the below post we have tried to give you an overview of Fixed vs Floating Interest Rate & which option should you opt for.
Fixed Rate is the interest rate on your home loan that remains fixed throughout the loan tenure. Fixed rate loans are usually at a higher interest rate than floating rates. If you are comfortable with the prevailing interest rates and are reasonably sure that interest rates will rise in future than, opt for a fixed interest rate home loan. Lending institutions keep a prepayment penalty if you have taken a fixed rate home loans. The penalty is around 2% plus taxes for individual borrowers. The penalty is applicable if the loan is refinanced from any bank/Housing Finance Institution (HFC) or any Non Banking Finance Company (NBFC). Usually there is no prepayment penalty if the loan is prepaid through ‘own sources’. A borrower should read the terms and conditions carefully before committing for a Fixed Rate Loan.
Floating rate on the other hand is an interest rate on your home loan that changes based on change in the lender’s benchmark rate. Interest rates on your Home Loan change every quarter or half yearly and depends on the institution you borrow the loan from. Interest rates on floating rate home loans are lower than on fixed rate home loans. If you are not sure about the direction of the interest rates in the future than opt for a floating rate home loan. Most of the home loans disbursed are on Floating Interest Rates.
A borrower should opt for a floating interest rate home loan if:-
- he expects interest rates to fall in the future
- if he is unsure about interest rate movements in the future
A borrower should opt for a fixed interest rate home loan if:-
- he wants to be certain about the EMI he will be paying every year
- he expects interest rates to rise in the near future
- If interest rates have come down significantly
A borrower has a choice to opt for a combination loan as well. A combination loan is part fixed and part floating and it allows the borrower to switch between fixed and floating rate by paying a nominal fee
At Wealth Baba we are empaneled with various institutions and banks and ensure that you get your Home Loan at the best interest rate, with no extra charges and with the least hassle. Feel free to contact us for any queries or for any guidance regarding the best option for you.