Can anyone help in explaining the diferrence between the floating interest and fixed interest as i am planning to get a home loan, please
2006-10-02 01:40:02 · 8 answers · asked by solomon.joseph 1 in Home & Garden ➔ Other - Home & Garden
If you get a 30 year fixed at, say, 5%, it means that for the life of your mortgage, you'll pay only 5%. You're locked into that rate -- it's "Fixed." Okay?
Variable rates give you a fixed rate for anly a short time, and then the rates fluctuate with whatever rate the current market is at. This can mean that in the future, you may be paying 10%, 11% -- or whatever the rate is at. The rate is no longer fixed, it is variable. A lot of people get sucked into these, and regret it. The difference in only a few points, can mean several hundred dollars in extra finance charges EVERY MONTH. This is the primary reason so many people loose their homes.
Interest rates are currently going down. Now is a good time to lock yourself into a nice low fixed rate, which will mean that your monthly payments will never vary throughout the life of your loan. Go fixed. You'll thank me.
2006-10-02 01:46:58 · answer #1 · answered by Anonymous · 0⤊ 0⤋
fixed are set for the life of the loan and are based on long term (30 year) rates. Floating are based on 1 year rates and are usually less that the fixed at the start but will move with the rate as things change. some have locks which dictate how much a rate can change. Today I would go with fixed unless you plan to move in three years, then look at all the rules around the floating. Make sure you know what your buying. A lot of people are now worried about their rates because things are going up.
2006-10-02 01:46:43 · answer #2 · answered by zocko 5 · 0⤊ 0⤋
As previous posters stated..
Fixed rates don't change over the life of the loan and Floating (vairable) rates do.
It depends on your situation and how long you'll be keeping the home as to which type you'd want. You also have to check the fine print on any loan that you get because there could be pre-pay penalties and other fees.
All variable rates/terms are not the same and they can be a good thing. Ours is for 5/1 (5 years fixed and adjusted every year thereafter). We also have it so it won't go up more than 2% a year and can only increase 6% over the life of the loan so we got a good deal.
As I said, check the fine print. Discuss it with your lender and figure out what's best for you and your situation.
2006-10-02 02:08:00 · answer #3 · answered by parsonsel 6 · 0⤊ 0⤋
A fixed Rate is for the Loan duration, it will not change, however your escrow levy can, that is a part of the loan to accumulate for Property Taxes and sometime Insurance.
A Floating rate, or Varible rate, changes up and down with the Federal Reserve Rate, which is manipulated at times to combat Inflation. If Inflation flares up, so will the Fed Rate, and so will your Interest rate- it is very risky, back in the 70's and 80's, Interest reach 13 to 20% - it generated more home foreclousers in 8 years under Reagan than the previous 60 years.
2006-10-02 02:02:53 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Interest is the 'rent' paid to borrow money.
A fixed interest rate loan is a loan where the interest rate doesn't fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments. When the prevailing interest rate is very low, a fixed rate loan will be slightly higher than variable rate loans because the lender is taking a risk that he could get a higher interest rate by loaning money later.
floating interest
This calculation is (FV/PV)-1. It ignores the 'per year' convention and assumes compounding at every payment date. It is usually used to compare two long term opportunities. Since the difference in rates gets magnified by time, so the speaker's point is more clearly made.
2006-10-02 01:45:36 · answer #5 · answered by Anonymous · 0⤊ 0⤋
A floating interest goes up and down with the bank rate and is usually cheeper than the fixed because it goes up and down.
A fixed rate is just that - fixed for the duration of the mortgage and usually starts higher but can not increase if bank rates go up.
So good to lock in to a low rate.
2006-10-02 01:44:18 · answer #6 · answered by Barbados Chick 4 · 0⤊ 0⤋
A fixed interest doesn't fluctuate/change during the repayment period or term of the loan, thus this allows the borrower to accurately predict their future payments
Floating interest, on the other hand is fluctuating or it changes over the term of the loan because of economic factors like inflation, etc
2006-10-02 01:48:00 · answer #7 · answered by sheikaella 4 · 0⤊ 0⤋
fixed rates cannot change ...floating interest can go up at any time ..I'd go with fixed
2006-10-02 01:42:09 · answer #8 · answered by Anonymous · 0⤊ 0⤋