Fixed vs variable rate of interest in Housing loan

A home loan is based on two types of interest rates, fixed interest rate, and floating interest rate. Under the home loan based on the fixed home loan interest rate, the rate of interest does not change over the tenure of the loan. This means, if you have taken the home loan for 15 years @ 11% fixed rate, then till the end of 15 years your home loan interest rate will not change.




However, in the case of a home loan based on a floating interest rate, the rate of interest on your loan does change based on the change in the bank rate. For instance, the bank rate when you availed a floating rate based home loan was 6.5%. You availed the loan @ of 11% for 20 years. Now, after 2 years, the bank rate has decreased to 6%. In such a case, it is likely that your home loan interest rate will also decrease.

Some key differences between fixed and floating interest rate are:
a) Nature: In the case of a fixed interest rate, the rate of interest is fixed throughout the tenure. Whereas for the floating rate, the interest rate changes with the bank’s lending rate.

b) Rate of Interest: The rate of interest is higher in case of a fixed rate than floating rate based loan.


The fixed rate is best suited for short term home loans like 3-5 years. For a more extended period floating rate is the better option.

READ:- Fixed vs variable rate of interest in Home loan

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