Should You Opt For A Fixed Rate Or A Floating Rate Home Loan?

A fixed-rate home loan remains unaffected by the change in interest rates. 

The borrowers can make a long-term financial plan as they know the exact EMI amount they need to provision for during the fixed-rate home loan period right at the beginning of the loan repayment tenure. As a result, it can be easier to maintain financial stability with a fixed-interest-rate home loan. 

The tenure of the home loan remains unchanged as the interest amount remains the same.  

You think that home loan interest rates will likely increase in the future. So, in that case, you would take a fixed-rate home loan to lock in the current interest rates.  

You think the existing fixed interest rate for a home loan is quite cheap, and then you would prefer paying off your loan at this rate.  

You are unsure about interest rate movements. Then you would rather pay a fixed EMI for the entire loan repayment tenure. Say your salary rises in the future, and the EMI for your fixed-interest-rate home loan might become a lesser part of your monthly expenditure. 

You don’t plan to pre-pay the home loan in part or in full, and then a fixed-rate home loan would definitely be a good bet.  

The interest rates can get adjusted at specific intervals, like quarterly or annually.  

The loan disbursement date can affect the borrower's interest rates. 

The lender may adjust your interest rates depending on the agreed-upon terms and conditions. For instance, some lenders adjust the interest rates on the completion of an annual loan repayment period. 

You can pre-pay the home loan in part or full without attracting any penalty.  

The lender reserves the right to alter the interest rate cycle as per the norms. 

Your EMI amount usually remains unchanged in the event of changes in interest rates. Only the loan repayment tenure changes. So, if the interest rates decrease, then your loan repayment tenure decreases. Alternatively, the loan repayment tenure is extended if the interest rates increase. 

One of the key differences between home loan floating vs fixed is the interest rate. The floating interest rate is usually lesser than fixed-rate loans.  

If the floating rate of interest in a home loan decreases, then the cost of the loan can come down. 

Any increase in the rate of interest is temporary and can always change. Any downward revision in the interest rates can benefit you.  

You believe that interest rates will decline in the future, reducing the cost of your loan. 

You are willing to take risks associated with the uncertainty of interest rates. Moreover, you are ready to accept the increase in the cost of your home loan if the interest rates rise in the future.