Fixed and Floating Interest Rate Home Loans

It's a primary question for applicants, as it decides the future of their budget, repayment capability and financial burden.

Floating Interest Rate: They are tied with base rate + floating element in such a way that if base rate varies, floating element varies too.

Benefits:
1) They are always 1%-2% cheaper than fixed interest rates.
2) Even if floating rate goes high, it will be for shorter periods and will be bring down in future.

Drawbacks:
1) Uneven nature of monthly installments.
2) Difficult budgeting.
3) As seen in recent times, increase in floating interest rates caused borrowers to shell out heaps of extra bucks, disrupting the whole budget.
4) Fear of market pushing and commercial banks economy don't put forward good future.


Fixed Interest Rate: It allows repayment in fixed equated monthly installments. It is not affected by market ups and down, Indian economy or banks monetary policies.In the former periods of installments, interest is paid and principal amount is served in later EMIs.

Benefits:
1) Unaffected from market fluctuations.
2) Excellent for those good in budgeting.
3) Brings sense of certainty and security.

Drawbacks:
1) Costlier than floating rates.
2) If for some reason, loan rates decreases they remain unaffected.


Our advice: Don't join crowd of borrowers with floating interest rates (currently 90% borrowers go for this), as the recent history of 2 years says - The interest rate will never go down but on average will be increased by 50 basis points each year. So, however you need to pay some extra bucks to your EMIs in initial periods in case of fixed rates, still in your whole loan tenure you will be averagely saved from paying 3% extra.