Understanding Fixed & Floating Interest Rates On Home Loans

By BankBazaar | October 19, 2017

Before applying for a Home Loan, it is imperative that you understand its most important aspects. Here’s the lowdown on fixed and floating Home Loan interest rates.

Understanding Fixed & Floating Interest Rates On Home Loans

Taking on a Home Loan is a huge financial decision. This is exactly why it is extremely important to know all about some of the most important aspects of a Home Loan.

When most people decide that the time is ripe to apply for a Home Loan, the first thing they look out for is the interest rate on the loan. Choosing a Home Loan with an interest rate that meets your financial requirements is imperative. However, it can be a slightly confusing task, considering the various fixed and floating interest rates out there.

To put your mind at ease, we’ll tell you all about fixed and floating Home Loan interest rates, so you can make an informed decision when you finally apply for one.

Additional Reading: Watch Out For These 6 Important Things When Getting A Home Loan

Fixed Interest Rate Home Loan

A fixed interest rate Home Loan is one in which the interest rate is fixed for the full term of the Home Loan. A fixed interest rate, like the name suggests, does not change or fluctuate according to market trends.

During the initial period of a fixed interest rate Home Loan, you will pay off the interest component of the Home Loan, while the repayment of the principal loan amount is reserved for later in the loan tenure.

Additional Reading: Home Loan Interest Rate Guide

Advantages of a fixed interest rate Home Loan

  • A fixed interest rate gives borrowers a sense of stability as far as repayments towards the Home Loan are concerned.
  • If you are disciplined enough with your monthly budget and you prefer paying fixed repayment amounts over the tenure of a Home Loan, you could choose a loan with a fixed interest rate.

Disadvantages of a fixed interest rate Home Loan

  • The interest rates on fixed interest rate Home Loans are generally 1% – 2.5% higher as compared to floating interest rate Home Loans.
  • In case the interest rates on Home Loans decrease, a borrower with a fixed interest rate loan will not get the benefit of lower interest rates.

Additional Reading: What Type Of Home Loan Should You Opt For?

Fixed Interest Rates In India

If you’re looking for a Home Loan with a fixed interest rate, you’re in luck. There are a wide range of banks in India who offer extremely affordable fixed interest rates on their Home Loans.

Depending on the amount borrowed and the tenure you choose, you could get fixed interest rates that start from as low as 9.70%, while in some cases you could even get a fixed interest rate as low as 11.75% on a Home Loan with a tenure as long as 20 years.

Floating Interest Rate Home Loan

This type of interest rate varies according to prevailing market conditions. Floating interest rate Home Loans are linked to a base rate. In case the base rate changes based on the market, the interest rates also get revised.

Advantages of a floating interest rate Home Loan

  • A Home Loan with a floating interest rate is comparatively cheaper than a fixed interest rate Home Loan. Even if the floating interest rate happens to rise above the fixed interest rate due to market fluctuations, there’s a good possibility it won’t stay that way for too long.
  • A floating interest rate helps borrowers save on the repayment amount.

Disadvantages of a floating interest rate Home Loan

  • If you’re looking for uniformity in your monthly budget, a floating interest rate Home Loan may not be your ideal choice. This is because the monthly EMIs for the loan would differ every month. This could make budgeting rather tedious.
  • A borrower will benefit from a floating interest rate Home Loan only as long as the interest rate remains below 11.5%.

Additional Reading: Fixed VS Floating Interest Rate

Now that you know the basic differences between a fixed interest rate and a floating interest rate Home Loan, you can decide which one suits you best as per your financial needs and requirements.

Additional Reading: What Happens After Your Home Loan Is Approved

If you’re looking for a Home Loan, we have a wide range of excellent Home Loan products to browse through. We’re sure you’ll find one that’s tailor made just for you.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

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