Making a choice between Fixed, Semi-Fixed, and Floating home loan options is a tricky affair. Each option comes with its share of pros and cons, and a wrong pick can affect the buyer in long and short term.
The best home loan interest rate option depends upon many factors like age of the applicant, prevailing market condition, and tenure of the loan. So, it is recommended not to get lured by lucrative bank offers and opt for the interest rate that best suits your condition and needs.
Before moving forward, let’s see what each of these options imply
Fixed Interest Rate –
A fixed interest rate is a loan where the interest rate does not fluctuate during the entire tenure of the loan. The borrower is able to accurately predict future interest payment.
Floating Interest Rate –
Also known a variable or adjustable rate, the floating interest rate does not remain fixed over the life of the loan and fluctuate as per market dynamics.
Semi-Fixed Interest Rate –
Semi-fixed interest rate is a combination of fixed and floating rates. Here, the interest rate remains unchanged for a given time period, after which it gets converted to floating rate.
Know which one suits you better?
Table given below will give you a clear idea about the situation and best interest rate option to be selected –
|
Scenario & Rate |
Fixed Rate |
Floating Rate |
Semi-Fixed Rate |
|
Tenure |
Suitable for long tenure (more than 20 yrs.) |
Suitable for medium/short tenure |
Suitable for medium tenure |
|
Income Flow |
When income flow is adequate |
When income flow is not expected to grow |
When income flow is not expected to grow |
|
Market Dynamics |
Ideal when interest is expected to fall |
Ideal when interest is expected to rise |
Ideal when interest is expected to rise in short term & then fall |
|
Age & Risk Taking |
Suited for borrowers aged 30-35 yrs. & ready to take risk |
Suited for borrowers aged 50 yrs. & do not want to take risk |
Suited for borrowers not willing to take risk |
Now that you know the difference between fixed, floating and semi-fixed interest rate, be smart and analytic and make an appropriate pick.
