Home loan: Which is better, floating or fixed rate?


Buying a house is as important as it is difficult. The biggest challenge after finding a good home is to get an affordable home loan. During this time you have a chance to take a loan at a floating and fixed rate. What is the difference between the two rates and under which circumstances the choice of which rate will be better, the report of Pramod Tiwari examining the whole-

Uniform EMI to be given over the entire period

Banking expert Ashwani Rana says that in fixed-rate home loans, the banks fix the interest rate at the beginning, which is applicable throughout the loan period. In fixed-rate home loans, you feel certainty, because, at the time of taking a loan, you only know what your repayments will be.

This will help you to make the right budget and make your financial plan. Fixed-rate loans are generally priced slightly higher than floating-rate loans. If the difference is large enough then you can consider the floating-rate loan. If the difference is less then the fixed rate will be better.

Loan duration will change due to the bank's decision

It is also known as Adjustable Rate Home Loan. These loans are linked to the bank's benchmark rate, which fluctuates with the market interest rate. If the benchmark rate changes, the interest rate on the loan also changes proportionately and your EMI will also be affected.

The interest rate on such a loan is reset at fixed intervals. It can be every quarter or half-year of the financial year or it can be different for each customer, which depends on his financial risk or earnings.

If the rate increases then your remaining loan term will increase and decrease if it decreases. This is done not to change the EMI amount. If you want, you can ask the bank to revise your EMI instead of the loan term.

When to choose a fixed rate

If your EMI is limited to 25-30 percent of the monthly salary.

The future interest rates are expected to rise and you want to lock the home loan at the current rate.

Recently interest rates have come down and you are comfortable with the current level. For example, SBI's home loan rate is currently 7-7.5%.

When to bet on floating

If you are expecting interest rates to fall over time, then the choice of a floating-rate loan can reduce the cost of the loan in the future.

If the fluctuations in interest rates do not affect you, then the choice of floating rate would be better.

If you want to save some on your interest cost in the near term, choose the floating rate, which is less than the fixed rate.

Change the option whenever you want by paying a fee

Investment advisor Balwant Jain says that 'customers can change both options whenever they want by paying a fee to the bank. Apart from this, you can also choose a combination loan, which is converted to a fixed or floating rate after a certain time. Although it is difficult to say which loan will be better, if the repo rate and the interest rates of the banks are low, then you can bet on the fixed loan.