Are you
planning to buy a house through a home loan? It is important to know a few factors before diving into the pool of home loan schemes and types of interest rates. Study the
difference between floating and fixed rate of interest carefully before finalizing your choice.
I will explain the difference between fixed and floating interest rates by explaining both of them in detail.
What is Floating Rate of Interest?The floating rate of interest keeps on changing as per the market or index rate. Floating interest rates are also known as variable interest rates.
Advantages of floating interest rateFloating rates are usually lower than fixed rates.
As floating rates keep on floating so there may be a situation when index or market-rate rate low which eventually cuts down the EMI costs.
In a floating rate, there is no payment penalty. This helps borrowers to clear their debts without burden.
Fixed interest rates are the rate of interest that remains constant throughout the loan tenure. It is an unchanging interest rate. In fixed interest rate EMI and loan repayment duration will also remain fixed.
Advantages of Fixed interest rateFixed interest rates are safer as compared to floating rates.
In fixed interest rates a person can maintain the certainty of payment as interest rates are fixed.
When a person avails a fixed interest rate, he can make his monthly budgeting easy.
| Floating Interest Rate | Fixed Interest Rate |
Difficulty in budgeting |
Can maintain the monthly track easily |
EMIs keeps on changing |
Fixed EMIs |
Higher risk |
Lower risk |
Saving oriented |
Security oriented |
These are the difference between floating and fixed rate of interest.
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A floating interest rate, also known as a variable or adjustable rate, can change periodically based on market conditions or a specified index, resulting in fluctuating loan or investment payments. In contrast, a fixed interest rate remains constant throughout the entire duration of the loan or investment, providing predictable and unchanging payments. The difference between floating and fixed interest rate however, is not restricted to this. There are several other differences between the two. I have been working in the banking sector for several years now so let me help you understand what is the difference between fixed and floating interest rates.
What is the Difference Between Floating Rate and Fixed Rate?
The differences between the floating rate and fixed rate are:
| Floating Rate | Fixed Rate |
Payments can fluctuate, making budgeting more challenging. |
Payments are consistent, allowing for easy budgeting and planning. |
Borrowers or investors are exposed to interest rate fluctuations, which can be advantageous or detrimental. |
Borrowers or investors are shielded from interest rate changes and their associated risks. |
Typically lower than fixed rates initially, making it more affordable at the outset. |
Usually higher than initial rates for floating rate loans. |
Less predictable in the long term due to variable rates. |
Highly predictable over the entire loan or investment term. |
Tied to market conditions, economic factors, and central bank policies. |
Unaffected by market conditions once the loan or investment is established. |
These are some of the major differences between fixed and floating rate.
Get Home Loan Services from NoBroker without paying any fees. Read More: How to calculate floating interest rate? Which rate of interest(floating or fixed) is best for the salaried person ? What is floating interest rate?Your Feedback Matters! How was this Answer?
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Authors Of The Question
What is difference between floating and fixed rate of Interest?
Rakesh Goyal
4667 Views
2 Answers
3 Year
2021-04-14T10:58:29+00:00 2023-10-15T22:35:08+00:00Comment
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