Fixed Vs Floating Home Loan Interest Rates
Making your dream come true by purchasing a house of your own is now easy by availing of a home loan from the lender Banks/NBFCs/HFCs. Although getting a home loan is easy, what is more complex is choosing between the best home loan schemes of the top lenders. You must select the best depending upon the financial convenience that you expect from your loan. Many factors influence your selection such as loan tenure, FOIR, LTV, processing charges, loan foreclosures, CIBIL scores, etc. Given the long-term tenure for the housing loan, home loan interest rate is one such vital factor to be considered while you apply for a home loan. The interest rates in home loans are broadly categorized into two types. (i) Fixed Interest Rates & (ii) Floating Interest Rates. You must wisely select between the two according to your financial needs & preferences. The decision to choose between the floating rate and fixed rate has always been challenging for home loan borrowers. We therefore, have highlighted below some of the pointers that would help you to make the best decision.
Here is everything you need to know about floating rate vs fixed rate in a home loan.
Fixed Home Loan Interest Rates
In a fixed rate the interest rates remain fixed for the loan tenure and hence in house loan fixed interest rates, the interest rate remains fixed irrespective of the market fluctuations. The fixed interest rates are always higher by 1%-2% and attract a prepayment penalty of 2%-4% on the outstanding loan amount. The low fixed rate home loan usually comes with a lock-in period of 2, 3, or 10 years depending on your home loan tenure during which you cannot balance transfer your home loan to a new lender. (Also read on home loan refinancing in India) The lender reserves the right to reset your home loan at any point of time. At times you get a fixed interest rate that is applicable only for a few years post which it automatically converts into a floating interest rate loan.
Taking into consideration the fixed nature of the interest rates, it makes sense to lock yourself on the best-fixed interest rates if you expect the interest rates to increase in the future. However, you may shift your home loan from fixed to floating home loan interest rates and vice-a-versa any time during the tenure of your loan.
Benefits Of Fixed Interest Rate
- Home Loan With Fixed Rate Of Interest offers protection against volatile conditions.
- Fixed rate home loans are more suitable for a shorter duration (3-10 years) since markets are more predictable in the short run.
- In a home loan on fixed rate of interest, you know well in advance how much will be your monthly outgo on installments for the tenure. This helps in the proper planning and budgeting of your finances.
- Best fixed interest rate home loans are suitable for those who wish to have certainty & flexibility in their EMIs.
Disadvantages Of Fixed Interest Rates
- With a housing loan fixed rate, you cannot enjoy the benefits of lower interest rates of home loans.
- Fixed rate home loan rates are costlier. Home loan at fixed interest rates in Mumbai are 1%-2% higher in comparison to floating rate of interest home loans.
- You pay a prepayment penalty of up-to 4% even if you have bagged the best fixed home loan rate.
(Also Read: 13 Important Things To Remember Before Prepaying Your Home Loan)
- You cannot switch your home loan to a new lender.
(Also read entire FAQs on home loan switch)
- The total interest payable in the long run till the loan tenure is much higher.
Home Loan Fixed Rate Comparison Of The Top Lenders
|ICICI home loan fixed interest rate||7.80% p.a. – 9% p.a.|
|HDFC fixed rate home loan||7.50% pa. – 9% p.a.|
|Canara Bank home loan fixed interest rate||Not available|
|Axis Bank home loan fixed interest rate||9% p.a. – 10% p.a.|
Floating Home Loan Interest Rates
Floating rate home loans are the opposite of fixed interest home loans. A floating home loan means the interest rate fluctuates with market fluctuations led by the repo rate of the Reserve Bank of India. As the interest rates in the economy move up or down, the current floating rate of housing loans will also move up or down accordingly. Hence, they are also termed as fluctuating home loan interest rates or adjustable rates, or variable interest rates.
The floating interest rates are linked to the external benchmark rate i.e., the Repo rate. Since the repo rate is the rate at which RBI lends money to the banks & is decided by the RBI, it is termed as an external rate. Hence any change in the repo rate also brings changes in the adjustable rate home loans of the banks. The interest rate under external benchmarks is adjusted periodically (quarterly, half-yearly, or annually) depending on the terms and conditions of your loan. However, the banks are free to decide the spread over the external benchmarks and hence you could experience a difference in the housing loan floating interest rates of the various banks. Current floating interest rates in Mumbai for home loan starts from 6.70% p.a. onwards. Whenever a variable interest rate will change either your loan tenure or the per month installment will change. (Also read, why home loan interest rates of NBFCs higher than banks)
It makes sense to opt for adjustable rate rates in Mumbai if you expect the rates to either remain constant or fall over a period of time. The floating housing loan interest rates are suitable for those who have fewer market insights and thus want to stick to the market rates.
Best Variable Interest Rate Of The Top Lenders
|ICICI Bank Home Loan Floating Interest Rate||6.80% p.a. – 7% p.a.|
|HDFC Home Loan Floating Interest Rate||6.75% p.a. – 7.40% p.a.|
|Canara Bank Home Loan Floating Interest Rate||6.90% p.a. – 8.90% p.a.|
|Axis Bank Home Loan Floating Interest Rate||6.90% p.a. – 9% p.a.|
|Floating Interest Rate SBI Home Loan||6.95% p.a. – 10.95% p.a.|
|Click to get the complete chart on interest rates for a home loan|
Advantages Of Floating Home Loan Interest Rates
- Floating home loan rates are relatively cost-effective in the long run when compared to the fixed rates.
- There is no prepayment penalty on variable interest rate home loans.
(Also Read: NOC For Home Loan Closure)
- You save on the total interest payable to the lender in the long run. Calculate how much you save with the help of a home loan calculator.
- You can anytime transfer your home loan to a new lender with lowest fixed interest rates or lowest floating home loan interest rates. Click to read more on the benefits of home loan transfer.
Disadvantages of Floating Home Loan Interest Rates
- The rate fluctuations are unpredictable especially in the long run and hence the monthly installments vary throughout the tenure of the loan.
- When the base rate increases lenders also charge you high rates which means an increased EMI burden.
- Due to uneven monthly outgoing, monthly financial planning becomes very difficult.
- Variable rates are not suitable for those who wish to have certainty & flexibility in their EMIs.
Difference Between Fixed And Floating Rate Of Interest
|Fixed Vs Floating Interest Rates|
|Fixed Rate For Home Loan||Floating Rate For Home Loan|
|Interest rates remain fixed throughout the tenure or for a specific period.||Interest rates fluctuate with the changes in the base rate.|
|Interest rates are usually 1%-2% higher than the floating rate.||Interest rates are lower than the fixed interest rates.|
|A penalty of up-to 4% for prepaying a fixed interest rate home loan.||No prepayment penalty for floating home loan interest rates.|
|Anytime convert to the floating interest rate with a conversion cost.||Anytime convert to fixed interest rate without any cost.|
|Comes with a lock-in period of 2, 3, or 10 years or as per the loan tenure.||No lock-in period for floating interest rate home loans.|
|A home loan balance transfer is not possible.||A home loan balance transfer is possible.|
- Lenders are more comfortable offering a lower interest rate on floating home loans, than offering the lowest fixed interest rate home loan, because when interest rates increase, they can also increase your rate. Click to know how to deal with the increasing interest rates of housing loans.
- It is crucial to carefully read the agreement to know the exact terms and conditions of your loan for interest rates, interest rate reset period, pre & part repayment charges, etc. (Also Read: 10 Common Home Loan Mistakes)
- Higher interest rates mean low home loan eligibility and vice-a-versa.
- Before taking a decision, you should compare & evaluate the home loans from the lenders based on the various parameters set forth.
(Also Read: 10 Important Home Loan Tips)
- To avail the best fixed home loans & lowest interest rate on floating home loans get in touch with us today.
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Loanfasttrack is a Mumbai-based loan provider company since 2015 offering loan services in Mumbai on– housing loan in Mumbai, mortgage loan in Mumbai, personal loan in Mumbai, unsecured business loans, home loan transfer, top-up loans, loan transfers and apply for a business loan in Mumbai. Loanfasttrack is a direct sales associate with leading banks namely, ICICI Bank, HDFC Ltd, Canara Bank, Citi Bank, Piramal Housing Finance, etc.
Loanfasttrack’s specialized services include providing:
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Q. Which is better floating or fixed interest rate?
Ans: If certainty and security are prime considerations, a fixed rate home loan will be the best option, and if saving on the total interest payable in the long run is the prime consideration, a floating rate home loan will be the best option.
Q. What is the difference between floating and fixed interest rates?
Ans: Please refer to the above table for the difference between fixed interest rate and floating interest rate.
Q. How much is the HDFC home loan fixed interest rate & HDFC home loan floating rate?
Ans: HDFC Bank home loan fixed interest rate is available at 7.50% p.a. which is fixed for 2 years & HDFC floating home loan interest rates starts from 6.75% p.a. onwards. HDFC also offers a concession on the interest rates for women applicants.
Also Read: Housing Loan Benefits For Women Borrower In India.
Q. What are the charges for prepaying HDFC floating rate home loans?
Ans: There are no pre & part payment charges forHDFC home loan floating rate loans.
Also Read: 10 Easy Ways To Know How To Repay Home Loan Faster.
Q. I have an ICICI fixed rate home loan. Can I transfer to ICICI floating rate home loan?
Ans: Yes, you can anytime shift your fixed rate home loan to ICICI Bank floating rate home loan and vice-a-versa with a nominal cost of the conversion fees.
Also Read: Why Apply Home Loan With ICICI Bank.
Q. When are ICICI home loan floating interest rates reviewed?
Ans: ICICI Bank home loan rates are reviewed periodically every quarter.
Q. Name the popular lenders who offer both the fixed rate and variable rate of interest for home loans?
Ans: Some popular Banks/NBFCs/HFCs that offers competitive rates for both fixed and variable interest rates for the home loan includes:
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- Income Tax Benefits On Home Loan.