Fixed or floating which is best

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Apply Now Product Info. What is Fixed Interest Rate? This rate remains steady throughout the tenor of the loan. When you opt for a fixed rate of interest, you can easily forecast your EMIs. Apart from that, since the rate remains steady, you can plan for home loan repayment with great ease as well.

However, since this rate is constant, lenders usually charge you a slightly higher amount as compared to a floating interest rate home loan. This type of home loan interest rate is ideal for you if the rate of interest at the time of taking the loan is low and you want to make the most of it. Wealth Wise Series How they can help in wealth creation. Honouring Exemplary Boards. Deep Dive Into Cryptocurrency.

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Insure Life Insurance. Health Insurance. Motor Insurance. Other Risk Covers. Personal Finance News. Mutual Funds. Rate Story. Font Size Abc Small. Abc Medium. Abc Large. Getty Images One should know that her bank may have a better view of interest rates than herself.

Shikha, a year-old mother of two, is an IT professional. She has been living with her parents since the demise of her husband five years ago. Since floating rates are unpredictable and can decrease or increase with time.

The total amount saved is almost INR 90 lakh which is a huge amount and even if the market fluctuates and the interest goes higher you will still save money. Some popular banks and non-banking financial companies offering both these interest rates include:. This means assigning half the portion to fixed home loan and half to floating home loans or you may choose to keep it at a ratio or some other ratio depending on your financial needs.

It makes sense to lock yourself on a fixed rate when there is a clear indication that the interest rate might go upward. But as a borrower, it is also justified to be confused about the interest rate that you have chosen and you might want to change from floating to fixed or vice-versa in the future. So, you can consider shifting from one rate type to another. The charges of converting will be anywhere between 1. The answer lies in doing the math and knowing clearly how much interest you save and how much fine you will pay.

He is an ex-investment banker, technopreneur and a fintech specialist. At Forbes Advisor, he is determined to help readers declutter complex financial jargons and do his bit for India's financial literacy. Select Region. United States.

United Kingdom. Advisor Personal Finance. Updated: Apr 19, , pm. Atul Monga Contributor. Armaan Joshi Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations. Pros Remains constant throughout the tenure The main feature of fixed-interest-rate financing is that your rate remains the same even when market prices fluctuate, which happens when the central banking authority—the Reserve Bank of India—changes the rate at which banks can borrow and lend.

Helps you plan your budget In a fixed-interest-rate scenario, borrowers can lock the interest rate as per their ideal budget and plan other finances. Is easy to understand Fixed-rate home loans are easy to understand and vary little from lender to lender. Cons Is costlier Since the rate is constant throughout the tenure and banks cannot revise interest rates, fixed interest rates are usually 1. Is tough to get when rates are high If interest rates are high, qualifying for a loan gets difficult because of the need to make higher payments.

Exceptions Some fixed-rate loans may only remain fixed for certain periods. Pros Is linked to the repo rate These interest rates are directly linked with the repo rate, which is the rate at which banks borrow from the Reserve Bank of India RBI.

Applies base pay interest If you choose floating interest rates for your home loan, you have to pay a base pay interest as an added element to your loan. Imposes no prepayment penalty Floating interest rates offer no prepayment penalty. Cons Is unpredictable The nature of floating interest rates is very unpredictable making it difficult for borrowers to plan their budget.

Can be inconvenient There are occasions when the interest rate would increase to an extent that it would become slightly inconvenient for the borrowers to pay their EMIs.