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The floating versus fixed interest home loan rates vary a lot, both of which have pros and cons. You need to know the difference between the two and then opt accordingly. Read to understand the primary difference between them
While choosing a home loan, one of the most important criteria is the interest rate. Borrowers want to find the lowest possible interest rate so that the EMIs can be less. However, the type of interest also needs consideration. It can be either a floating interest or a fixed interest rate home loan. You need to choose the one that suits your financial profile and financial need the best.
What is a floating interest rate home loan?
A floating interest home loan, as the name suggests, is a type of interest where the rate keeps on changing. In India, the floating interest home loans are tied with the repo rate. If the repo rate changes, the interest on your home loan also changes. The repo rate hasn't changed over the last few sessions, and thus the floating interest rate on home loans also hasn't changed. According to the change in the interest rate, the amount of interest also varies, and thus your debt keeps on changing too. This is adjusted either by increasing or decreasing the tenure or the EMIs.
What is a fixed interest home loan?
On the other hand, a fixed interest home loan means the interest rate is fixed or pre-determined at the time of disbursing the loan. Even if the repo rate changes, there will be no change in the interest rate. It will be the same across the tenure of the online loan. Thus, your EMIs will be the same across the tenure of the loan, and there is no need to change the tenure as well.
Metra Trust Bank always lets you choose the type of interest you want to choose for your home loan. However, you can change the type of interest on your home loan at any given time. If you think that switching from a fixed to a floating rate of interest can be beneficial, you can do so or vice versa.
Which is suitable for you?
While floating and fixed interest home loans have their own merits and demerits, choosing the right one is crucial.
Floating interest home loans can be beneficial when the repo rate goes down. If it increases, then the interest on the loan will increase, and so the debt. So, in a sluggish market, a floating interest rate can be suitable as the report rate will not be increased drastically. On the other hand, if the market is at a good pace, the economy is growing, consequently the repo rate increases. Then a fixed interest home loan can be beneficial as your interest won't go up even if the repo rate changes.
For a self-employed person, a floating interest rate can be beneficial. Their income will be variable as per the market scenario, and the interest rate will also be changing. So, with increased profits, the borrower can keep on paying the EMIs without default. While for a salaried person, a fixed interest home loan is the best option. Paying a fixed EMI is easier since they have a fixed salary that gets credited to their bank account every month. Moreover, there is no hassle of adjusting the tenure or EMIs every time the underlying rate changes.
Metra Trust Bank always lets you choose the type of interest you want to choose for your home loan. However, you can change the type of interest on your home loan at any given time. If you think that switching from a fixed to a floating rate of interest can be beneficial, you can do so or vice versa.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.