Fixed Rate: In the fixed rate, the rate of interest is fixed. It will not change during entire period of the loan. For example, if a home loan, taken at an interest rate of 12%, is repayable in 10 years, the rate will remain the same during the entire tenure of 10 years even if the market rate increase or decrease. The fixed rate is, normally higher than the floating rate, as it is not affected by market fluctuation.
Floating Rate: In the floating rate or variable rate, the rate of interest changes, depending upon the market condition. It may increase or decrease. For example, if a home loan is taken at an interest rate of 12% , repayable in 10 years, in April 2006, and if the market rate increases to 12.5% in April 2007, the interest rate of this loan will also be increased to 12.5% If the loan is under the EMI system, depending upon the change in interest rate, the repayment period varies, but equated monthly installment remain the same.
Depending upon the prevailing market conditions, people may choose fixed and a floating rate.
Floating Rate: In the floating rate or variable rate, the rate of interest changes, depending upon the market condition. It may increase or decrease. For example, if a home loan is taken at an interest rate of 12% , repayable in 10 years, in April 2006, and if the market rate increases to 12.5% in April 2007, the interest rate of this loan will also be increased to 12.5% If the loan is under the EMI system, depending upon the change in interest rate, the repayment period varies, but equated monthly installment remain the same.
Depending upon the prevailing market conditions, people may choose fixed and a floating rate.
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