Understanding Fixed and Floating Home Loan Interest Rates

Opting for a loan is a very important decision, which needs to be taken only after proper deliberation. There are various aspects to a home loan. You need to go through and understand each one carefully before choosing a loan scheme. One of the important aspects of home loans is the interest rates. There are two types of interest rates; fixed and floating. People often get confused which one should they choose and mostly end up taking the wrong decision. This article will take you through both rates in detail so you can compare and know which one is best for you.

Fixed Interest Rate
This interest rate remains same for the entirety of the tenure of the loan. It does not get affected with the up and down swinging rates of the market. This one is thus perfect for people who do not like taking risks.

If you opt for fixed home loan interest rates, you can do proper budget planning before making each payment. This interest rate will help you pay your monthly EMIs smoothly without facing a financial crunch. Thus you will be able to clear off the debt on time.

But there are certain disadvantages of fixed rates. They are usually higher than floating rates. And if the market rate drops during the tenure of your loan, you won’t be able to take advantage of paying less EMIs. Also, this type of interest rate is not suitable for you if you are planning to prepay your loan i.e. clear off the debt before its tenure gets over. If you are prepaying your loan, then you will have to pay an additional prepayment charge that is usually between 2 to 2.5%.


Floating Interest Rates
Floating interest rates are not fixed. They fluctuate according to the trends in the market. Based on the upward or downhill movement of the rates, the floating interest rates are revised at periodic intervals.

One of the biggest advantages of this type of interest rate is that it is less than fixed. People who are not averse to taking risks should go for these home loan interest rates.

Borrowers can benefit a lot when the rates go down. They can do so many saving during this period. And if the rates are high, then too they can be assured that it will not be for the entire tenure of the loan as the rate is prone to fluctuations. Since there is so much risk involved in floating interest rates, they do not come with any prepayment charges. So if you are confident that you will be able to pay off your loan before its due date, this is the interest rate for you.


The only disadvantage of these types of home loan interest rates is that they do not allow for proper budget planning. There is uncertainty regarding the total EMIs to be paid per month.

Thus both have certain advantages and disadvantages. It is upon you to decide which one is perfect for you based on your budget and financial obligations.

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