What suits you best, Fixed or Floating Interest rates for your dream home

Choosing a home loan to invest in your dream home is a perplexing task, especially for first-time homebuyers. One of the most prominent factors to take into account when choosing a home loan is the interest rate. Qualified home buyers have two types of interest rates they can select from: a fixed interest rate and a floating interest rate. All major financial institutions offer both these types of interest rates. Selecting the best type of interest payback for your home loan will depend upon several aspects. In Bangalore, 3 BHK Flats for sale in Devanahalli are available at attractive prices, all you need to do is learn about fixed and floating interest rates to help you make the best decision.

What is a fixed interest rate?

In simpler terms, a fixed interest rate is one where the interest amount is kept constant and does not differ depending upon market fluctuations. The borrower has to pay Interest rates at the start of every month.

Pros of Fixed Interest rates

1. Greater predictability

Since the interest rate remains steady and does not change, you will be able to manage all your financial expenses properly. This will help you budget your household finances and forecast your annual expenses more accurately. Stability is the key to serenity.

2.Best for short-term loans

Since you can estimate better about the market in the short term, fixed interest rates are best for loans that can be repaid in a short period. For long payback dates, the buoyancy of the market can make it hard to estimate whether interest rates could potentially fall in the future.

3. Enhanced Security

The third and the most crucial advantage is that it provides you with a sense of security. If you are unclear about where your career path will get you while buying a new home, a fixed home loan will strengthen you with the financial backup you need.

Cons of Fixed Interest Rates

1. Higher rate of interest

Fixed interest rates generally have a higher interest rate. If we compare precisely, the fixed interest rate would be between 2 – 2.25 % higher than that of a floating interest rate.

2. Short payback tenure

Fixed Interest rates are eligible only for a couple of years and may not last the entire tenure of the loan. This stocks the borrower in jeopardy as they would have to pay floating rates until the tenure of the loan is completed.

What is a floating interest rate?

Floating home loans also referred to as ‘adjustable interest rate’ home loans can be defined as a home loan where the interest rate keeps shifting throughout the fixed loan, due to changes in the market rate.

This specific loan is linked with the bank’s Benchmark rate, which in turn rides according to the market interest rates. After specific intervals, the interest rates reset of the floating home loans, and this could vary after every quarter or every 6 months. Floating home loans interest differ from customer to customer as it depends upon the date of the first expending of his home loan.

Pros of Floating Interest Rate

1. Lower interest rates

Floating interest rates offer a much lower interest rate compared to fixed interest rates. This unique factor indicates that even if the floating interest rate does increase due to market irregularities, it is not possible to exceed the fixed interest rate.

2. Probability of lower total interest payable

If you estimate precisely that interest rates will drop over some time, choosing a home loan with a floating rate will surely drop down the interest rate on your loan, hence reducing the cost of the loan.

3. No prepayment penalty

There is no prepayment penalty for a floating home loan, unlike a fixed home loan. This shows that even if you repay your home loan in less time than expected, you won’t be charged a fee for it, and it is quite practical also. For 2 BHK flats in Devanahalli for sale, millennials are going for floating interest rates.

Some Cons of floating interest rates

1. Budgeting difficulties

To plan out and budget your finances properly will keep you at your wit’s end due to the constant fluctuation in interest rates. You won’t be able to get a clear picture of the future with floating interest rates. For a financially stable individual, it is not a difficult task to buy a luxury apartment in Devanahalli, even with little uncertainty with the interest rates.

2. Highly subjective to market factors

A floating rate will only profit you as long as the interest rate doesn’t shoot up beyond 11.5 %. Beyond this, it can transcend the amount you actually pay with fixed interest rates. Loans For a shorter duration like a home loan for 1bhk flats for sale in Devanahalli, fixed interest rates will be the best pick for you.