Home Loan - Whether to Choose Fixed or Floating?

Choosing the right kind of interest rate can be extremely baffling while shopping for a home loan. Only a single question comes into mind – Should I choose 'fixed' or 'floating' rates of interest?

Interest rates on home loans have been fluctuating since the last 6 years. For that reason, a consumer cannot be sure of any trend to narrow down on the best loan. In March 2000, the rate was about 14% which started falling steeply.

The interest rate on home loans fell to 7% and it soared to a high of around 10% (floating rate of interest) in January 2007. It is believed to be the most dramatic hike. Floating rate of interest, as it name signifies, can be either increased or decreased, which is clearly mentioned in a home loan agreement. On the other hand, if a consumer goes by the route of fixed rate of interest, he could be paying a huge premium today.

A consumer should analyze the past market trends to have an idea about how it has moved and consider the costs and benefits of changing the decision. A well informed customer always makes right choices.

Floating interest rate on home loans can be changed by the bank. This is why it makes sense to choose 'transparent floating' interest on home loans. This basically means that the interest rates will have a direct relation with the general interest rate. If one will go up, then the other will also increase and vice versa.

Unlike floating interest rates, a true-blue 'fixed' interest rate remains fixed during the entire loan tenure. Banks do not have the power to change it under any circumstance until and unless the clauses mentioned in the home loan agreement say so. Therefore, it is always recommended to read between the clauses meticulously.