What is fixed rate and floating rate of interest?

Question

where and when are these interest rates applicable

Answer 1

Fixed rate is a rate that does not change. Any interest acrued is at a set rate. Floating rate will change. So you could call it variable rate, I suppose.

When thinking of their application, the most common is mortgages. Some people prefer fixed rate because, they know what to expect; the interest rate is always the same. It does not increase or decrease. Othere prefer variable rate, due to the up and down spikes: the rates will climb but at times they will also fall considerably.

Answer 2

The fixed and floating interest concepts are normally related to loans. Banks are generally quote their interest rates on various loans in the form of spread or margin over the PLR or the Prime Lending Rate. (In USA this is referred to as PRIME). This PLR in turn is again based on the various macro economic parameters like Bank Rate in India and FED Reserve Rate in USA. These basic rates normally decide the cost of funds for the banks. Hence whenever there is change in the cost of funds, the base rate is changed and therefore the applicable rate to the borrower is also changes automatically.

To overcome this uncertainty, especially in respect of long term borrowing, the borrower can ask for a fixed rate on the loans. In such a case the spread or margin quoted on the then prevailing PLR is higher. Once the rate is fixed, then any subsequent variations in the PLR will not have any effect on the rate of interest to be paid by the borrower. This type of rates are preferred when in the opinion of the borrower, the interest rates in the long term are likely to harden..(i.e. increase). Conversly, when the interest rates are showing the downward trends, the borrower would like to take advantage of the lowering cost and hence will ask for a floating rate quote.

Answer 3

Fixed Rate of Interest is the interest is the rate of interest that is agreed between you and your lender which will be applicable through out the term of the agreement period (till you repay the loan in full), irrespective of the change inthe interest rate in the market. i.e., If you agree to pay an interest rate of 9.75% p.q. for your loan, even if your Banker changes the rate of interest to 12% later , or reduces it to 9%, you will not be affected, you will continue to pay 9.75% only throughout your loan period.

On the other hand, the floating rate of interest is the rate of interest for the loan amount will be changing according to the banker's discretion, which is generally governed the monitary policy of the RBI. The Fixed rate of interest if generally 0.75% higher than the floating rate but is fixed for ever.

To conclude, on a term where the interest rates are falling it is better to go for floating rate of interest for a borrower, and where the interests are marching a up swing, it is better to go for a fixed rate of interest eventhough it is 0.75%. Many banks also give the option to convert your loan from fixed rate to floating rate and vice versa, on paying a nominal fees at any time during the period of loan repayment.

Answer 4

These term generally used in connection with Housing loan.

when you choose fixed rate on housing loan, your rate of interest is fixed irrespective of change in market or prime landing rate (PLR) of the lender.

on the other hand floating rate of interest is linked to PLR of the lender so in case of falling PLR you can take benefits of your interest rate on home loan reduced too. At the same time, in case of rising interest rates, your interest rate on loans will be revised upwards.

India is a growing econmy and the growth rate is more or less settled now. However choosing floating rate of interest will give you benefits of average out of your rate of interest.

Answer 5

Fixed rate the interest which never reduse like any amount by but interset will be same.But flaucting interest will be reduse as the original capital reduse.
Ex. fixed interest
capital 1000 int 10%
now amt 100 you haave to pay 100 as the interest.
Ex floating
capital 1000 int 10% here int Rs.100/-
capital 100 int Rs 10/-
hope so you got it.

Answer 6

It is a choice provided to the customer. IN floating rate the rate is always linked to a benchmark rate and in fixed rate it is not so. whenever you are thinking in terms of shorterm. go for floating rate and longer the period go for fixed rate.

Answer 7

as an occasion, residential mortgages could be won with a fixed interest value, it relatively is static and can't replace for the era of the loan contract, or with a floating interest value, which adjustments periodically with the marketplace. interior the case of floating fees of interest in mortgages, and maximum different floating value agreements, the best lending value is used as a foundation for the floating value, with the contract pointing out that the interest value charged to the borrower is the best interest value plus a definite unfold.

Answer 8

extremely tough subject. look into at google. that could help!

Answer 9

THE FIXED EXCHANGE RATE IS FIXED BY THE PARICULAR COUNTRY ITSELF, IT MAY FIX THE RATE OF EXCHANGE TO GOLD OR OTHER NATION CURRENCY EG DOLLAR