Loans are a serious financial commitment and none requires as much research and thought as a home loan. After all, owning a home is a commendable achievement but with tenures running into decades, home loans require careful financial planning. Finance amounts acquired through home loans are considerably large sums of money and given the lengthy tenures, the biggest consideration of the borrowers are the interest rates.
Interest rates of Home Loan Home loans can be broadly clubbed into 2 groups. They are fixed interest rates and variable interest rates. The intricacies involved in each group can be exhaustive and many borrowers allow the bank to choose the policy for them but with a commitment this size it behoves the borrower to understand the basic premise of each type of interest rate. The article below explains Fixed rate interest and Variable rate interest charged on home loans.
Fixed vs Variable Housing Loan Interest Rates
Banks offer home loans at fixed interest rates and variable or floating interest rates. Some features of home loans differ based on these rates. They have their own benefits as well. Read through this guide to learn more about fixed and variable home loan interest rates.
Features of Fixed Rate Home Loans:
- A fixed rate of interest throughout the tenure of your home loan.
- Interest rates are not affected by any market fluctuation.
- Fixed interest home loans are largely offered by financial institutions rather than banks.
- Redraw and overdraft facilities are provided for such loans.
- A consistent repayment schedule for your entire loan tenure.
Features of Variable Rate Home Loans:
- Interest may change during the loan tenure..
- Floating interest rate is pegged to the Base Lending Rate (BLR) which is based upon a bank’s requirements.
- Any increase in the BLR would lead to an increase in your payable interest rates.
- Facility to make additional repayments and withdraw them later if required.
Difference between a Fixed Rate Home Loan and Variable Rate Home Loan
|Features||Fixed Interest Rate Home Loan||Variable Interest Rate Home Loan|
|Interest Rate||Same throughout the tenure||Can change during the tenure|
|Repayments||Same repayment schedule across the tenure||Varying repayment schedule as per market fluctuations|
|Insurance||Needs MRTA and Fire Insurance Insurance is expensive||Needs MRTA and Fire Insurance Insurance is cost effective|
Which Interest Rate to Choose
Compare both interest rates before you take a loan. Choose one that meets your financial needs, and allows you to repay your loan easily. As both interest rates come with their own advantages, pick the one that gives you the maximum benefits. Analyse your financial standing and the loan amount to decide on the best-suited interest rate structure for yourself.
Useful Home Loan Articles
- Top 5 Housing Loans in Malaysia
- Checklist for applying Home Loan in Malaysia
- Taxation process of home loans in Malaysia