Fixed Vs Floating: Fixed rate home loan or floating rate, which option is more beneficial for you and when..

When you go to the bank to take a loan, the bank tells you about both fixed rate home loan and floating rate home loan. In fixed rate home loan, the interest rate is fixed at the time of taking the home loan. The EMI which is fixed with that interest remains the same throughout the loan period. On the other hand, floating rate loans are linked to the lender's benchmark rate. If the benchmark rate changes, then their interest also changes. Most banks consider RBI's repo rate as a benchmark, due to which whenever the repo rate decreases, floating rate loans become cheaper, whereas when the repo rate increases, these loans become expensive.

For this reason, they are also known as 'adjustable rate home loan'. In the case of home loan, many people consider fixed rate loan to be better, while some consider floating rate home loan, but if seen, both have their own benefits. Know when choosing which option will be beneficial for you.

When should you choose fixed rate home loan?

- The first advantage of choosing the option of fixed rate home loan is that at the time of taking the loan, you know how much EMI you have to pay. Whether the repo rate increases or decreases, your interest rate does not change. In such a situation, your EMI also remains the same throughout the period. This helps you in making your correct budget and financial planning.

- If you are comfortable with your EMI, then you can choose the option of fixed rate home loan. Keep in mind that your EMI should not be more than 25-30% of your take-home monthly income.

- If you anticipate interest rates to rise in the future and therefore want to lock your home loan at the current rate. In such a situation, Fixed Rate Home Loan can be chosen.

- The cost of a fixed rate loan is usually slightly higher than a floating rate loan. If the difference is quite large, you can consider a floating rate loan. But if they are almost equal or if the difference is negligible, you can opt for a fixed rate loan.

When to choose a floating rate home loan

- If you expect interest rates to come down in the coming days, you can opt for a floating rate loan. In such a case, the interest rate applicable on your loan will also come down, which will reduce the cost of your loan.

- Floating rate loans are good for those who are uncertain about interest rate fluctuations and prefer to stick to market rates.

- Since floating rate loans are usually marginally lower than fixed rate loans, it gives you some benefit in the cost of your loan. You can choose this if you want to save some money on your interest cost in the future.

- One of the advantages of a floating rate home loan is that when you make a prepayment, you are not charged any prepayment charges, whereas if you want to close a fixed rate loan before time, the bank charges you a prepayment charge

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