Buying a property is the biggest investment that many of us make at least once in our lives. Looking at the investment that requires a notable capital, most of us have to depend on financial institutions to manage the investments.
Property loans are basically available with two financing options – fixed and floating rate. It is quite essential to understand the difference between the two types of financing options.
Difference between Floating and Fixed rate
A fixed rate is basically a loan wherein the monthly instalments for repayment are same for the entire loan period that you agreed upon with the bank. This means the borrower will pay the fixed amount on a monthly basis to the lender that he /she agree on with the lender.
A floating rate is basically a loan wherein the interest rate changes from time to time based on certain factors like inflation rate, liquidity and measures of RBI, the overall conditions of economy. You can visit https://www.acta.fi for more information on these types of loans.
Benefits of loans with fixed rates
Loans with fixed rate gives you a sense of absolute comfort and are associated with instalments that borrowers pay. The option protects borrowers from fluctuating market interest rates and conditions and lets them pay an amount as they agreed with the bank. This option is perfect for those who do not want to take the risk of paying the interest as per changes in the market conditions.
Benefits of Floating rate
Most buyers prefer floating rate because they are 1-2.5% cheaper than the loans with fixed rates. Thus, when the interest goes up by 2% and when the floating is taken at the rate of 11%, it turns out to be cheaper than the fixed rate, which is taken at say 13.5%. Also, when the interest rates fall down, the borrower can get remarkable benefits as they can go for lower instalments or can reduce the loan term or continue to go ahead with same EMIs or instalments.