Floating v/s Fixed Interest Rate Home Loan: How to Make the Right Choice

As of now, there are two variants of housing loan offered in India: floating interest rate loan and fixed interest rate loan. Though both of them are based on MCLR system of lending, there’s a huge difference between the two. Hence, it becomes a bit difficult for first-time home buyers to make the right choice. So, how can you decide which home loan rates type is better one? Read on to find out the answer.

Pros of fixed interest rate home loan:-

• Fixed interest rate throughout the tenor irrespective of market changes.
• The borrower pays the same EMI despite relaxations by the NHB (National Housing Bank).
• Fixed interest offers a sense of certainty for the loan’s repayment.

Cons of fixed interest rate home loan:-

• Interest rates are always higher than the average offered with floating interest rate type loans in the market.
• The borrower pays the same EMI even though NHB announces a drop in home loan rates.

Perks of floating interest rate home loans

• Interest rates are pretty lower compared to fixed interest rate type borrowers.
• The borrower gets immediate benefits as soon as the NHB announces any relaxation for home buyers or the market condition improves and the rates for loans go down.
• Also, if the floating rate goes up the fixed rate, it will only be temporary, and not for the entire loan tenor.

Cons of floating interest rate home loans

• No sense of certainty for the loan’s repayment. The overall payable amount can increase or decrease with changes in the market.

Summing up, both fixed and floating interest rates have their own benefits and pitfalls. Thus, selecting an interesting type is always a personal choice as one should opt for one depending on his/her current income, existing debts and more.

Reference Read: Floating vs Fixed Rate – Which Interest is Best for Home Loans