Are fixed rate home loans really fixed?
Author: Habibulla Antule
Author: Habibulla Antule
Thee are two types of interest rates available on home loan- fixed rate and floating rate. Many
home loan borrowers go with a fixed rate home loans in the sense of financial security as they think same monthly repayment for the loan. But, are fixed rate home loan really fixed? Here is a note on different types of fixed rate home loans. Basically, most of banks offer two types of fixed rates for home loan. In one type of fixed rate home loan, the interest rate is fixed for the specified term of the loan. At the end of the specified term, the interest rate are reviewed. In this, the interest rate may be adjusted according to the market interest rate. Another type is regular fixed rate home loan which is available in two variants-for 3 years and 5 years. The interest rate is fixed for the 3 years and 5 years, then switched to prevailing market interest rate. Almost all banks are offering these kind of loans at attractive rate of interest. Pure fixed rate is another type of home loan, but it is more expensive. It is also really difficult to find the pure fixed rate home loan, because most of the banks are not offering these kinds of loans as the interest rate remains same for the entire loan term. From the banks consideration, the more risk is involved in a pure fixed rate home loan, because the same interest rate is spread for the entire loan term up to 30 years and possibilities to increase in the market interest rate in this period. Fixed rate home loans features are almost same as floating rate home loans. Although, the interest rates are very much higher than floating rates. Now days, fixed rate home loan is a very popular option for the borrowers. The reason is that the borrowers have the security of fixed interest rate at least for the term of the loan.About the Author:
Habibulla Antule is a financial advisor and consultant and have provided his expertise to many financial institutions for
loans and
insurance
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