123ArticleOnline Logo
Welcome to 123ArticleOnline.com!
ALL >> Investing---Finance >> View Article

How To Select The Type Of Interest Rate To Suit Your Needs?

By Author: Aishwarya Mahurkar
Total Articles: 291

Getting a home loan currently is easy the difficult bit is deciding which type of home loan interest rate to choose. Financial institutions offer their customers with two major types of home loan interest rates namely fixed and floating interest rate. Both types have their benefits and drawbacks which every home loan applicant is required to go through before selecting the interest of their choice.

Fixed interest rate

A fixed interest rate allows the borrower to pay a fixed EMI each month to the financial institution. During the entire tenure of the loan, the EMI remains the same for the borrower. The fixed interest rate is not at all affected by the fluctuations in the market rate. One thing that a borrower must understand is that when opting for a fixed interest rate, during the repayment process, the beginning months are spent repay a majority of the interest rate and not the principal amount. So if a borrower is planning to repay their loan in advance at any point and wish to choose a fixed interest rate, they must opt for a shorter tenure to make the loan more affordable.

Pros

The fixed interest rate means that there is a lower risk involved.

One can plan their finances effectively and budget their money so as to ensure that the home loan does not put too much financial stress on the borrower.

In no way can any drastic or minor changes in the market rates affect it.

Cons

The only major drawback of opting for a fixed home loan interest rate is that it is a more expensive option as compared to floating interest rate.

Floating interest rate

A floating interest rate means that the interest rate charged on the home loan is open to change and gets affected by the fluctuations in the market rate. In this type of interest rate, there exists a base rate with a floating element. During the entire tenure of the loan, the EMI is constantly changing for the borrower. Extra effort is required from the borrower to calculate the correct EMI for the month and also pay it on times. One can always use the financial institutions EMI calculators to calculate an optimistic and pessimistic EMI based on expected changes in the market rate.

Pros

The greatest benefit that a floating interest rate holds is the fact that it is cheaper as compared to a fixed interest rate.

The changes in the home loan interest rate are subject to change. Every change in the interest rate occurs for a period of time only.

Cons

It is extremely difficult for individuals to predict the changes in the home loan interest rates each month.

Author Bio :

The author is a seasonal writer on topics of finance and the housing loans sector. Through her writing, she articulates aspects that are important to people availing facility such as home loan interest rates, documents, home loan eligibility criteria that help to make the best decision.

Total Views: 67Word Count: 485See All articles From Author

Investing / Finance Articles

1. No Credit Check Faxless Payday Loans
Author: www.faxlesspaydayloansbadcredit.ca

2. Understanding Corporate Debt Restructuring In India
Author: Aniket Vichare

3. Tips To Know Before Applying For A Personal Loan By Srg
Author: srg housing

4. The Ultimate Guide To Cryptocurrency Wallet
Author: cryptocoinx

5. Buy And Sell Mutual Fund Online | Moneytreesolution
Author: Moneytreesolution

6. Can I Get A Loan Despite Bad Credit Unemployment?
Author: nocreditcheckloansguaranteed

7. Advantages Of Binance Crypto Exchange
Author: Cryptocoinx

8. Payday Loans For People On Benefits Direct Lenders - 100% Online Decision
Author: Hamish Rutherford

9. Best Mcx Commodity Tips Provider In India
Author: Abhishek

10. Why Open An Nri Account?
Author: Samantha Kennedy

11. Commercial Mortgage Loan
Author: Loansa Assit

12. Why Perform A Fundamental Analysis Of A Company?
Author: Aastha Kapoor

13. Open Online Trading Account With The Lowest Brokerage Charges
Author: Krutika Sharma

14. Avail Reliable Tax Return Online Australia Services To Get The Job Done Like Never Before
Author: jameslogaa

15. Get Yourself Best Sip Plans For Long Term
Author: Jignesh Shah

Login To Account
Login Email:
Password:
Forgot Password?
New User?
Sign Up Newsletter
Email Address: