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Floating vs Fixed Interest Rate_WC 

2 min 27 Jun 2023
floating vs fixed rate home loan
Highlights
  • Types of Interest Rates for Home Loans
  • What is a Fixed Interest Rate?
  • What is a Floating Interest Rate?
  • Which Home Loan Interest Rate to Choose?
  • Choosing Floating Interest Rate
  • Choosing What is Right for You

Fixed vs Floating Interest Rate 

Buying a home for the first time, especially with a Home Loan, can be a considerable task. You have to take into account numerous factors before you decide to avail of a Home Loan. If you are wondering how to reduce Home Loan interest rates, you should always keep in mind the types of interest rates available. The type of rate of interest will ultimately determine how much interest you will be paying. Floating and fixed interest rates are two popular options. Read on to know more about them. 

What is a Floating Interest Rate?

Floating interest rate for a Home Loan can be a good choice if the interest rates are predicted to fall in the future. This is because if the rates fall, they will impact the amount or repayment in the same way, and your loan cost will reduce. Floating rates are set marginally lower in comparison to the fixed rates.

Benefits

  • Floating interest rates have the advantage of being more competitive, irrespective of the fluctuations. There is no limitation of the interest rate hike, yet, it has been observed in most cases that they are cheaper than the fixed rates by at least 1% or 2%.
  • In the long run, floating interest rates are cost-effective. Even if there is a hike in the rate in the current month, there are also chances of the rate reducing in the future.

Drawbacks

  • This type of interest rate, owing to its fluctuating nature, may make your interest outflow inconsistent at times.
  • Your EMIs are subject to change occasionally, depending on market conditions. This might change your ongoing repayment schedule.

What is a Fixed Interest Rate?

When the interest rate of your Home Loan does not vary with the prevailing base rate, it is called a fixed interest rate. This interest rate is not affected by the market forces and remains the same throughout your Home Loan tenor. Therefore, this rate is fixed, and you pay the same amount as EMIs every month.

Benefits

  • The rate of interest remains the same throughout the tenor of your Home Loan. So you can easily predict your monthly financial expenses.

  • Even when Home Loan interest rate trends are high, a fixed interest rate still remains the same.

Drawbacks

  • Fixed interest rates are comparatively higher. They can exceed the floating rate by at least 1% or 2%.
  • Any rate changes announced by the RBI are not applicable to the loans already borrowed. Borrowers need to continue with their existing rates.

Comparison between Fixed and Floating Interest Rate 

Features 

Fixed Interest 

Floating Interest  

ROI 

Interest rate is high 

Interest rate is standard 

EMI 

EMI amount remains the same throughout the tenor 

EMI amount may increase or decrease throughout the tenor 

Link 

It is not linked to the Repo Rate 

It is linked to External Benchmark such as Repo Rate 

Tenor 

Comes with shorter tenor 

Comes with longer tenor 

Affordability 

Cost-effective in short term 

Cost-effective in long term 

 

Additional Link: Important Factors that Affect Your Home Loan Interest Rate 

Which Home Loan Interest Rate to Choose?

There are differences between floating and fixed interest rates. Both interest rates come with their own set of benefits and drawbacks. Each interest rate will be beneficial for you in a specific scenario.

Choosing a Fixed Interest Rate for a Home Loan

If you are expecting a rise in the interest rate in future, you can go for a fixed interest rate. Similarly, if the current rate of interest is lesser than what it was a few years back, now is the time to go for a fixed interest rate.

You can also go for this interest rate if you are comfortable paying the current monthly interest amount.

Choosing Floating Interest Rate for Home Loan

If you are thinking of availing a Home Loan, then we hope that this blog proved to be beneficial and cleared your doubts regarding the types of interest rates available to you. Yes, it is quite a tricky choice, but we hope that now you will be able to make an informed decision.

Choose What is Right for You

If you are thinking of avail of a Home Loan, then we hope that this blog proved to be beneficial and cleared your doubts regarding the types of interest rates available to you. Yes, it is quite a tricky choice, but we hope that now you will be able to make an informed decision.

Frequently Asked Questions_WC

Frequently Asked Questions

​​​Yes, borrowers who have opted for a fixed interest rate do have the option to switch to a floating interest rate. While these policies differ from lender to lender, typically, such borrowers will be asked to pay a nominal premium to complete the switch. ​​​​

​​​Borrowers who have a home loan with a floating interest rate can prepay parts of the repayment above, without facing any additional charges – provided that they are individual borrowers who don’t use the sum to address business related concerns. ​​​​

Blog-Intro-Disclaimer

DISCLAIMER:

While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent errors or delays in updating the information. The material contained in this website and on associated web pages, is for reference and general information purposes, and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. Neither Bajaj Housing Finance Limited nor any of its agents/associates/affiliates shall be liable for any act or omission of the Users relying on the information contained on this website and on associated web pages. In case any inconsistencies are observed, please click on contact information.

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