Which one is better and when?

Fixed interest rates are beneficial in times when market interest rates are expected to go up. You are then protected from paying more and can even benefit from having lower payments than the prevailing market rates would cause. However, when market rates fall, you can’t take advantage of the lesser charges, since your interest rate is fixed. 

Floating interest rate poses a challenge when market rates rise since they will trigger higher interest payments. Nevertheless, when market rates fall, you may benefit from lower rates, effectively reducing the total amount of interest paid.

personal finance

It is difficult to predict which direction the rates will go and hence which type of interest rate should be chosen. You may base your choice on your risk attitude. If you are eager to accept additional risk of rising rates for the potential benefit of paying less if the rates fall – you would feel better with the floating rates.

If a however small rise in the payments can pose a considerable challenge to your payments ability as well as bring lots of stress into your life, you would be better off by selecting fixed rate to protect yourself from interest rates increase.

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