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Choosing Between Floating and Fixed Rates:: Example

This document compares the advantages and disadvantages of fixed and floating home loan interest rates. Fixed rates offer stable monthly payments but generally have higher interest rates of around 2% more than floating rates. However, the fixed rates may still be adjusted by the bank. Floating rates typically have lower initial interest rates of around 2% less than fixed rates, but the monthly payments could increase significantly if rates rise. Floating rates could also decrease if market rates fall.

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VinodKumar
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81 views1 page

Choosing Between Floating and Fixed Rates:: Example

This document compares the advantages and disadvantages of fixed and floating home loan interest rates. Fixed rates offer stable monthly payments but generally have higher interest rates of around 2% more than floating rates. However, the fixed rates may still be adjusted by the bank. Floating rates typically have lower initial interest rates of around 2% less than fixed rates, but the monthly payments could increase significantly if rates rise. Floating rates could also decrease if market rates fall.

Uploaded by

VinodKumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Choosing between Floating and Fixed Rates:

Lets compare the home loan rate options and see what suits you best

Advantages Disadvantages
Fixed Rate #1. Stable EMI: Monthly #1. Higher Interest Rates: Interest
payments will remain consistent rates for fixed interest loans are
with no surprises in the short generally 2% more as compared to
term. Please read the fine print the fixed rate loans.#2. Rate can
on the loan offer. Your bank has still readjust: It makes sense for
the right to change the rate fixed income and risk averse
under various conditions at its applicants  to opt for a fixed rate
discretion loan but as discussed earlier this
does not actually happen. So
choosing a fixed rate may not make
sense because they do not remain
fixed.
Floating #1. Lower Interest Rates: #1. Higher Payments:If interest
Rate Interest rates for floating interest rates go north (high) significantly,
loans are generally 2% less as then so will your monthly payments
compared to the fixed rate loans.
So if you opt for a 15 year loan
then the floating rate would be
let’s say 9.75% while the fixed
rate would be around
11.75%.#2. Rates can fall:
Another advantage with floating
interest rates is that when the
markets soften; the banks will
have to reduce its lending rates
to customers. Though lower
interest is not automatic and
straightforward, it can still  be
done
Example

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