Difference Between Floating Rate & Fixed Rate Of Interest Home Loan

Last Updated : March 3, 2020, 12:57 p.m.

What is fixed rate of interest?

Fixed rate of interest as its name suggests is fixed equal installments over the entire period for your home loan . In this type loan, the interest rate of the borrowed amount does not change with the market fluctuations. In this loan, in the initial years the maximum amount in repayment EMIs served towards the interest and a minimum portion towards principal amount. In the later years, you pay maximum amount towards your principal amount.

What is floating rate of interest?

Floating rate of interest as the term suggests is the rate of interest, which varied with marked conditions. Home loans on floating interest rates are tied to a base rate plus a floating element thereof. In case, if the base rate varies the floating interest rate also varies.

Both the rates have advantages and disadvantages, but as you must be opting for the loan for at least 5-10 years, choose for a floating rate of interest. Floating rate of interest is better for long-term as in case if the RBI reduces the interest rate, then you will also enjoy the reduced rate of interest. But if you will opt for a fixed rate of interest for full tenure then you need to pay the same if the RBI changes the base interest rates.