Fixed vs. Floating Interest Rates for Home Loans
Buying a home has varied meanings for different people. The house becomes a place where we commemorate life's significant events. Our homes provide a haven for us to keep our belongings, create memories, and share meals with friends. There, we raise our children, rock our grandchildren, and live our lives, good and bad.When it comes to making a purchase, even one as large as a house, research reveals that our emotions drive us more than we realize.
And in the flow of our emotions, we sometimes make incorrect or situations that are not so ideal. Home Loan interest rates and which types to choose are one of the decisions that most people go wrong with.
Let's begin by knowing what "Interest rates" are!
The interest rate is a percentage of the principal—the amount borrowed—that a lender charges a borrower. The annual percentage rate (APR) is the term used to describe the interest rate on a loan (APR) Interest is a fee levied on a borrower for the use of an asset. Cash, consumer items, vehicles, and real estate are examples of assets that can be borrowed.
The majority of loan and borrowing transactions are subject to interest rates. Individuals take out loans to buy houses, fund projects, start or expand enterprises, or pay for college tuition. Businesses borrow money to fund capital projects and grow their business by buying fixed and long-term assets like land, buildings, and machinery. Borrowed funds are repaid in whole on a predetermined date or in monthly payments.
Now let's move on to the different interest rates for a home loan!
Fixed-Rate: A fixed rate of interest indicates that your interest rate will not change during the term of your loan. It remains constant regardless of changes in bank lending rates or Reserve Bank of India repo rates (RBI). The Equated Monthly Instalments (EMI) will not change during the term. Some lenders provide loans with a fixed interest rate for the first few years of the term before transitioning to a floating rate thereafter.
Pros of availing fixed interest rates on home loan
Interest Rate: Throughout the loan term, the interest rate remains constant and is unaffected by market conditions.
EMI: Your EMI is set because the interest rate does not fluctuate over time, making it easier to manage your monthly budget and long-term financial savings or investments.
Why you should go for floating interest rates?
When there are good reasons to believe that interest rates will fall in the future.This form of interest rate is typically preferred by persons who lack market knowledge and hence prefer to stick to market rates. We hope we were able to provide some useful insights on floating vs fixed interest rates on a home loan, so that you can make an informed decision or help others do the same, by sharing this blog!