Fixed or Floating? Which is the Better Option?

Whether to choose a fixed rate home loan, which allows you to plan your budget clearly, or to choose a floating rate of interest that provides the benefits of decreased interest rate, is a question that perplexes every home loan seeker.

Types of fixed interest loans

There are two kinds of fixed rate loans: one that remains constant throughout the loan period, and one that is subject to review periodically. Usually, the interest charged is higher in the former than in the latter. For instance, a permanently fixed rate loan may cost you 14 percent interest, whereas a loan with a rate that is reviewed every three years may come at 13 percent. Additionally, there may be restrictions on the amount that can be prepaid in the case of both types of fixed rate loans.

Most loan owners are tempted to lock their interest rate for the entire loan tenure and not depend on market conditions for their EMIs. However, after a few years, if they feel the need to switch to a floating rate of interest, lending institutions allow them to do so after paying certain charges or fees.

Which is the best option for you?

Finally, it is up to the borrower to decide on what suits him/her the best. Ideally, the borrower should compare home loans for various parameters and understand every single detail about it. If certainty and security are prime considerations, a fixed rate home loan will be the best option. However, it won’t come without the premium on interest rates.

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