How to choose between fixed, floating and semi fixed home loan interest rates

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Housing Loan Interest
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How to choose between fixed, floating and
semi-fixed home loan interest rates? Well this
is a question that most home loaners ponder upon.
Some make the right decision, some get it wrong
and some just dont know what to do. Well,
believe it or not, there is an interest rate best
suited for everyone its only a matter of
choosing the one thats ideal for your financial
standing. Lets take a look at the three housing
loan interest rate options and see what each one
of them holds.
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Fixed The name itself denotes what this option
has in store for prospect home loaners. Yes, with
this option, your home loan interest rate neither
falls or increases over the entire tenure of the
loan. The advantage with opting for the fixed
home loan interest rate is that it allows you
better planning as far as repayment is concerned.
Also it protects home loaners from any market
fluctuations or government policies that may
cause a rise in the home loan interest rate.
However, this is an advantage as well as a
disadvantage. Because, in case the market
scenario take an upward graph or government
policies call for lowered home loan interest
rates, the fixed interest rate will remain the
same. But, all in all, this is more suitable
option for those looking for certainty and
assurance. Also its a good option for shorter
loan tenures and for those who dont expect their
income source to grow, such as pensioners.
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Floating With this option, your home loan
interest rate starts of lower than that of the
fixed option. So where a fixed interest rate is
10, the base rate of the floating home loan
interest rate is 9. But the floating element
comes into play when the market scenario takes an
upward or downward curve. So say there is a fall
in the overall market scenario during the second
year, in that case a floating element of .50 is
added to your base interest rate. And say the
next year too markets take a hit, in which case
the floating element further rises by another
.75, which is now more than the fixed home loan
interest rate. But this works conversely as well,
say the markets are doing well, in which case the
floating element will be subtracted from the
base, leading to an even smaller monthly
installment, in turn leading to better savings.
Besides bad market scenarios, with floating home
loan interest rates, the monthly installments are
never uniform and so planning your payback
structure becomes tricky. But the larger picture
is that if youre willing to take a little risk,
the floating option can provide you a substantial
amount of savings at the end. Its an ideal
option for those who are expecting a raise in
their source of income so as to comfortably
handle the fluctuation in the home loan interest
rate.
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Semi-fixed This option entails a home loan
interest rate that is fixed for a certain
pre-decided period and then later fluctuates
based on the market behavior. So for the first 3
years the interest rate will stay uniform
following which the floating element will come
into play. And if the fixed option is for ideal,
for short terms and the floating option for
longer periods, then the semi-fixed option is
best suited for medium tenures. Also if you can
predict, after studying the market, that the
interest rate is going to rise whilst the rate is
fixed and the fall when the floating elements
comes into play, then this options is the best.
Again, this option is best suited for those who
dont see a raise in their income anytime soon
and for those who dont want to take much of a
risk.   Now that you are aware of the key
differentiators between fixed, floating and
semi-fixed housing loan interest rates, be wise,
analyze your financial situation, study the
market and make an appropriate pick.
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Housing Loan Interest
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