Have you ever wondered what the difference between a floating home loan rates and fixed home loan rate is?
Is the difference as apparent as it seems to be, or is there more to what lies inside that meaning?
Is the ‘fixed’ rate of interest really fixed?
Gone are the days when taking loans was an unheard of exercise. These days, taking loans is one of the most common practices seen in not only urban, but rural India. One of the most common and most sorts after loans is the housing loan. The impact of the increased economic activity on the Indian consumer, in addition to a favorable housing retail market has lead to an increase in demand for house loans.
The next obvious step following the decision to avail a home loan, is to choose between fixed and floating rate of interest. This is a perfect example of a catch 22 situation. This is also where the banks step in, and with that brings a plethora of choices, and confusion!
The present condition of India, where inflation seems to have gripped the nation, has brought to light many new developments in the lending rates charged by banks. Home loans haven’t been able to escape the test of revision also. Media has closely followed every bank’s revision of their home loan rates, and this has perhaps leaded to the confusion in the minds of the people. When news media splashes reports on banks increasing home loan interest rates in India and their impact on Equated Monthly Installment (EMI), you deem it better to opt for fixed home loan rate. The fact that your banker also advises you to go for the same doesn’t help either. However, should you actually be doing it? Is it really a wise decision to go for ‘fixed’ interest rates?
Ideally, one assumes, that ‘fixed’ would mean, what it should mean, something which doesn’t change, something which remains permanently decided. One also assumes that once you have selected ‘fixed rate plan’ for yourself, the rate of interest will remain unchanged over the entire tenure of the repayment period irrespective of any subsequent increase in the same.