Well this is a question that most home loaners ponder upon. Some make the right decision, some get it wrong and some just don’t know what to do. Well, believe it or not, there is an interest rate best suited for everyone; it’s only a matter of choosing the one that’s ideal for your financial standing. Let’s take a look at the three home loan interest rate options and see what each one of them holds.

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 it’s a good option for shorter loan tenures and for those who don’t expect their income source to grow, such as pensioners.

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 you’re willing to take a little risk, the floating option can provide you a substantial amount of savings at the end. It’s 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 rates.

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 don’t see a raise in their income anytime soon and for those who don’t want to take much of a risk.

Now that you are aware of the key differentiatorsbetween fixed, floating and semi-fixed home loan interest rates, be wise, analyze yourfinancial situation, study the market and make an appropriate pick.