Fixed vs. floating an eternal dilemma.

Remember the famous phrase from Hamlet,” to be or not to be, that is the question”, same is the dilemma when you have to select in between the fixed and floating housing  loan interest rates. When you approach a financer with your working co-borrower; with a good credit score, stable income to pay your EMIs in time and fulfill other eligibility conditions, you loan is approved by the financer without any hassle. The catch-22 situation is when you have to select from fixed or adjustable rates, because of their set of advantages and disadvantages. This article may help you to know the benefits and drawbacks of the housing loan interest rates and choose your suitable rate.

Considering various aspects of the interest rates in the current market scenario it is worth finalizing a particular rate of interest. Since it the most important aspect of any loan getting it right is the key to a burden free debt without any financial stress and default over time. Nothing comes free in this market, if you want to enjoy some privilege you have to bear the consequences also. So benefits and drawbacks are two sides of same coin. Same thing is applicable for the housing loan interest rates.

In case of fixed loan the rate of interest is fixed for the whole loan term irrespective of the market condition or government policies. This is can be a benefit for you if the financial health of the market degrades and the interest rate rises, because you will pay the same rate. In dire situations the rate may increase a bit. Now if you are a risk averse person and not ready to compromise with the stability of your monthly budget and mental peace, then you will go for fixed rate of interest. Though this rate is bit higher than the adjustable rate but easily assimilates in your monthly budget without any fluctuations and gives you mental piece.

Floating rate of interest is lower compared to the fixed rate if you notice the present market scenario it is the lowest in history. These low rates cut your interest cost. This adjustable nature is beneficial for you when the rates decrease with healthy market condition and government policies. If the rates increase then you have to pay high rates. In order to get lower rates you may face the effects of rising interest cost in future with increasing rates. Lower rates in present may help you save for future fluctuations, when the rates climb up.

To deal with the borrowers’ ordeal some banking and non-banking financers have come up with a combination of the fixed and floating rate of interest. It is termed as truly fixed or semi-fixed rate. The financers offer the loan at a fixed rate for a committed period of time and then switch the rate to floating rate. It is ideal for the beginners who needs time to prepare themselves and adjust their monthly budget with the rate fluctuations till then a fixed rate eases their burden.

As a borrower you can better understand your requirement and affordability. The monthly EMIs absorb 30-40% of the monthly expenditures, and the interest rate plays a vital role in deciding the EMI. So if you are risk averse then go for fixed rate, if you are prepared for the fluctuations then go for floating and if you are confused and need time to decide then go for a combination of rates. After all it’s your loan and EMI; you know your financial profile better and can craft the budget accordingly.