Probably
one of the biggest dilemmas borrowers face whilst taking a home loan is
choosing between fixed and floating interest rates. This is a debate as old as
time and has haunted potential borrowers even before the loan application is
made. Both fixed and floating rates afford borrowers their own set of pros and
cons, and both are designed to suit different types of financial needs. This
article will discuss some of the advantages a potential home-loaner stands to
gain from with a floating type of interest rate.
It’s lesser than fixed rates!
House loan interest rates are probably one of the most daunting elements of the borrowing procedure. This is why the first and most important advantage of floating rate is that it’s always less than fixed interest rate. This is why most borrowers opt for this rate. With a floating interest rate you stand to receive an interest rate that would be at least 1-2.5 percent lesser than a fixed type of interest rate.
Second benefit; you stand to gain from unexpected drops:
To begin with, your interest rate is already less than that of a fixed interest rate. Now to add to this, if the market fluctuations or government policies call for a lowered base rate on the existing house loan interest rates, then those who have opted for a floating interest rate will stand to benefit even more.
Scope of savings:
Even if the floating rate stays the same, you stand to save a lot in comparison to opting for fixed house loan interest rates. And if the market fluctuates or government policies change in your favor, then you stand to save even more. Thus floating rate of interest affords you the scope to save a substantial amount of money.
Even the rates rise, it is okay!
Floating rates are anyways cheaper than opting for a fixed interest rate when the market is stable. But even in case the floating rate rises to match of the fixed rate, since house loan interest rates are cyclical, it will eventually fall over the tenure of your loan. Let’s take an example to better explain this, say you get a floating interest rate of about 11.5% while fixed interest rate is at 14 per cent, then even if the rates rise over a couple years by up to 2.5 percentage points, you’ve still saved in the initial years and when the rates fall again, you’ll again invite savings!
Should you choose a floating interest rate?
Well, considering all these advantages, if you think the market will remain constant over the tenure of the loan, then it’s a good decision to go in for a floating interest rate. What’s more is that if you have taken a short tenure for your home loan, then the chances of the rate rising above those of the fixed rate are less and so it makes sense to go for a floating interest rate if you have short tenures. But ultimately it boils down to risk appetite, if you are able to read the markets and predict a fall or no rise in the rates, the floating rate of house interest is ideal for you!
It’s lesser than fixed rates!
House loan interest rates are probably one of the most daunting elements of the borrowing procedure. This is why the first and most important advantage of floating rate is that it’s always less than fixed interest rate. This is why most borrowers opt for this rate. With a floating interest rate you stand to receive an interest rate that would be at least 1-2.5 percent lesser than a fixed type of interest rate.
Second benefit; you stand to gain from unexpected drops:
To begin with, your interest rate is already less than that of a fixed interest rate. Now to add to this, if the market fluctuations or government policies call for a lowered base rate on the existing house loan interest rates, then those who have opted for a floating interest rate will stand to benefit even more.
Scope of savings:
Even if the floating rate stays the same, you stand to save a lot in comparison to opting for fixed house loan interest rates. And if the market fluctuates or government policies change in your favor, then you stand to save even more. Thus floating rate of interest affords you the scope to save a substantial amount of money.
Even the rates rise, it is okay!
Floating rates are anyways cheaper than opting for a fixed interest rate when the market is stable. But even in case the floating rate rises to match of the fixed rate, since house loan interest rates are cyclical, it will eventually fall over the tenure of your loan. Let’s take an example to better explain this, say you get a floating interest rate of about 11.5% while fixed interest rate is at 14 per cent, then even if the rates rise over a couple years by up to 2.5 percentage points, you’ve still saved in the initial years and when the rates fall again, you’ll again invite savings!
Should you choose a floating interest rate?
Well, considering all these advantages, if you think the market will remain constant over the tenure of the loan, then it’s a good decision to go in for a floating interest rate. What’s more is that if you have taken a short tenure for your home loan, then the chances of the rate rising above those of the fixed rate are less and so it makes sense to go for a floating interest rate if you have short tenures. But ultimately it boils down to risk appetite, if you are able to read the markets and predict a fall or no rise in the rates, the floating rate of house interest is ideal for you!
No comments:
Post a Comment