When applying for long-term loans like Home Loans, you will encounter the choice between a fixed interest rate and a floating interest rate. Choosing the right one can save you lakhs of rupees.
Under a fixed rate structure, the interest rate remains constant throughout the tenure of the loan. This gives you predictability in budgeting since your EMI remains unchanged.
A floating interest rate changes with market conditions. It is linked to benchmark rates (like Repo Linked Lending Rate - RLLR). When the RBI changes repo rates, your loan interest rate adjusts accordingly.
If interest rates are currently high and expected to fall, choosing a floating rate is beneficial. On the other hand, if rates are at historical lows, locking in a fixed rate might make sense. Most home loan buyers in India choose floating rates due to flexibility and absence of prepayment penalties.