Fixed vs Floating Home Loan Rates: What is the difference? Which can benefit you more?

Often people have this question in their mind that while taking a home loan, which option would be better between fixed or floating interest rate. Today, we will tell you the difference between the two, which will help you in taking the right decision.

In the fixed interest rate, the interest rate is fixed at the time of taking the loan. In floating rate, the interest rate is decided depending on the market condition. Photo: Pixabay/Representational

Fixed vs Floating Home Loan Rates: To fulfill their dream of owning a house, most people take loans from banks. The rate of interest while taking a loan also plays a big role in taking the decision. Many people have a question in their mind whether the floating or the fixed rate is right for home loan. Both options have their advantages and disadvantages.

In such a situation, today we will tell you the difference between the two, which will help you in taking the right decision.

What is fixed interest rate?

In the fixed interest rate, the interest rate is fixed at the time of taking the loan.

During this period, the interest rate on your home loan remains stable despite any fluctuations in the market.

Through this, you can easily find out what will be your repayments, loan tenure and EMI.

When one should opt for fixed rate home loan:

1. You should be satisfied with the EMI that you have to pay. This should not be more than 25-30 per cent of your monthly income.

2. If you expect interest rates to rise in the future, and hence want to lock your home loan at the current rate.

3. With a fixed interest rate, loan borrowers know how much they have to pay every month, enabling them to plan their future finances.

What is floating interest rate?

In floating rate, the interest rate is decided depending on the market condition.

This rate is linked to the benchmark rate.

After the increase in policy rates by the RBI, banks also increase their rates, due to which, higher interest rates have to be paid on the loan.

Whereas, if the RBI does not increase the policy rates, then banks also don't make any change in the rates.

When one should opt for floating rate home loan:

1. If you generally expect interest rates to fall over time, choosing a floating rate loan will also reduce the interest rate applicable on your loan, thereby reducing the cost of your loan.

2. Floating interest rates generally offer lower interest rates than fixed rates. This can make your loan an affordable monthly payment.