Monday, October 15, 2012

Floating or Fixed which is the best to Opt?

It’s been a big myth to customers in opting the interest rate type while going for a Home Loan. Customer seeks their friends, colleagues and relatives advice that already availed a Home Loan. But still it’s been a puzzle to most of the customers how to opt and what to opt when it comes to the home loan interest rates. A little bit of understanding of the two banking terms eases the process of interest rate selection and which gives the best possible returns on the Home Loan over the period or repayment tenure.

All the home loan products are pre packed with two types of rate of interest i.e Fixed and Floating.  Fixed rate of interest is fixed for a limited period of time over the loan even if there are any fluctuations in the rates in the market. Banks will not increase or decrease the rate charged on the loan which is fixed at the time of availing the loan even if the rates comes down or goes up. Banks charge a min of 1% higher rate compared to the current prevailing rate to the customer who opts for the Fixed Rate of Interest. Post the term of Fixed the interest rate will be the rate charged on fresh loans at that time.

The Floating Rate of Interest is based on Base Rate and BPLR rates and charged according to the loan applied slabs. The floating rate can be increased or decreased if there are any fluctuations in the market. Banks revise the rates on quarterly basis on the loan amount and inform the customer about the revision of interest. If the rate is increased then accordingly the repayment tenure will be increased and if Possible banks can Increase the EMI also. 

Going for a fixed rate is better if the fixed tenure is above 3 years and taking conformation from the bank that the rate will not be revised even there are any huge fluctuations in the market makes a sense.