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For homebuyers, financing a home loan can be a complicated and lengthy process. Hence, to make an ideal choice, it is important to have thorough knowledge about which kind of interest rates regime suits your needs. The two possible financing options for a borrower are fixed interest rate and floating interest rate. Learn the meaning and basic differences between Fixed vs Floating Interest rate. 

Fixed Home Loan Interest Rate

Fixed housing loan interest rate is referred to as an interest rate that stays stable during the entire duration of your loan reimbursement period. There may not be any variation in the interest rate even if there are changes in market trends, lending charges, or the repo rates of the Reserve Bank of India. It is to be noted that even the Equated Monthly Installments (EMI) will stay unchanged during the lending period. In this scenario, it is possible for the borrower to calculate the money in advance that he is supposed to pay and can plan his investments and expenses appropriately. Moreover, due to the constant rate of interest, the borrower can also plan for the repayment of the home loan easily.

Floating Home Loan Interest Rate

A Floating house loan interest rate is quite different from a fixed home loan. Firstly, the interest rate constantly changes over the entire duration of the loan's tenure. While choosing this option, the borrower must be aware that he/she cannot predict the EMI with utmost confidence. It is to be noted that as the rates increase during the period, the borrower ends up paying more money. However, if the interest rates drop, you will benefit by paying lower EMIs. In certain scenarios, a Floating rate offered by a financial institution could be lower than a Fixed-rate offered to clients. This implies that even when the Floating rate rises, it can considerably be lower than the Fixed-rate.

Differences between Fixed and Floating Interest Rate Loans


Fixed Home Loan Interest Rate

Floating Home Loan Interest Rate

Interest Rate

Fixed home loan interest rates are usually higher

Floating home loan Interest rates are usually lower

Fluctuating ROI

The rate of interest remains the same throughout the loan tenure

In the case of a Floating rate, there are chances that the interest rate would increase or decrease

Predicting Interest Rate

If interest rates are low, it is advisable to opt for a Fixed home loan interest rate

If there are changes or fluctuations in the interest rate, then it is advisable to choose Floating home loan interest rate


There may be a penalty charged if the borrower chooses to pay off his loan before maturity

Floating interest rates do not have any prepayment penalty


There is lower risk in Fixed home loan interest rates

The risks are generally higher in Floating home loan interest rate

Market Conditions

Is unaffected by market conditions

In case of a Floating home loan, market conditions play a very crucial role in deciding the rate of interest

As seen above, both Fixed and Floating interest rates have their pros and cons, and it would be advisable to carefully study them before making an informed choice as to which type of home loan interest rate would fit your needs the best.

When Should You Opt for a Fixed-Interest Home Loan

There are various reasons why one can opt for a Fixed home loan interest rate. It is usually perfect if the rate of interest at the time of taking the loan is considerably less so you can take complete advantage of it. For instance, if the rate of interest was 15% some years ago but currently has dropped down to 9%, it would definitely be an appropriate time for a borrower to choose a Fixed home loan interest rate. Also, as we have seen above, the rate of interest does not fluctuate so if you are looking for greater stability and ease, this would be a preferable option. Additionally, if you anticipate an increase in the rate and want to make sure that your payment does not exceed what you are presently paying, it is advisable to settle for a fixed interest rate. 

When is the Right Time to Select a Floating Home Loan Interest Rate

Opting for a Floating home loan interest rate is purely an individual choice. But it is advisable to know the benefits before you make a choice. As a borrower, if you are familiar with the real estate industry, it would then be beneficial to opt for a Floating home loan interest rate. Additionally, if you are in a position to predict a fall in the home loan interest rates in the future, it would be favorable to choose this option as you’ll end up paying less. Lastly, as an individual borrower, selecting a Floating home loan interest rate is advantageous as you can avoid paying charges on prepayment or foreclosure that may largely benefit you in the long run.

Floating vs Fixed Interest Rate FAQs

Which is a better type of interest to choose for an older home loan borrower – fixed or floating rate?

It is advisable to opt for a Fixed-rate, as the interest rates will not fluctuate over the loan tenure. But you should choose according to your needs.

Can you shift from a floating rate of interest to a fixed interest rate or vice versa?

It is definitely possible to make a shift from Floating to Fixed interest rates. However, it is to be noted that the lender may charge a minimal fee of up to 2% of the loan amount.

Do NBFCs offer floating or fixed rates of interest on home loans?

NBFCs offer both Fixed and Floating interest on home loans depending on the lender.

Are both fixed and floating rates of interest available on personal loans?

Personal loans offer both Fixed and Floating rates of interest to borrowers.

Are vehicle loans available with both fixed and floating interest rates?

Depending on the lender, vehicle loans are accessible with Fixed and Floating interest rates.

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