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Home Loans: Floating vs Fixed Interest Rates


Interest rate offered by financial institutions is one of the most important factors to be considered in finalizing the desired home loan deal. As we all know that taking a home loan is the biggest financial decision of one’s entire life. Likewise, choosing the best interest rates is also a part of your decision making before taking home loan.

Finalizing on just the interest rate percentage does not make things simple because interest rates are further categorized into two types named as Fixed interest rates and Floating interest rates. Customers opting for home loan have the option to choose either type of interest rates. Therefore, we need to understand about fixed and floating interest rates in detail.

Comparison between Fixed and Floating Interest Rate

Fixed Interest Rate Floating Interest Rate
Higher Interest Rate Lower Interest Rate
Not affected by financial market conditions Affected by changes in financial market
Fixed EMIs EMIs change as per interest rate or MCLR
Budget planning possible Difficult to budget or manage financials
Sense of security Generates savings
Suitable for short/medium term (3-10 years) Suitable for long term (20-30 years)
Lesser risk Higher risk

What is Fixed Interest Rate?

People who opt for Fixed Interest Rate mean that they have to repay the home loan in fixed and equal installments as per the loan tenure. The advantage of fixed interest rate is that it would not change even if there are fluctuations or changes in the Indian financial market conditions or trends. Fixed Interest rate becomes the first preference when financial market is down. Consumers take the opportunity by blocking or fixing the interest rate as per their preference. In simple terms, if you think that financial market will not drop down below a certain point or foresee a rise in the interest rates, then choosing fixed interest rate shall be the best option to avail.

What is Floating Interest Rate?

Interest rate which is volatile and keeps on changing as per market scenario is termed as Floating Interest Rate. This type of interest rate depends on the base rate offered by several lenders, so whenever the base rate changes, the interest rate gets automatically revised. As compared to fixed interest rate, floating rates are comparatively cheaper. Fixed interest rates are 1%-2.5% higher than the floating interest rate. The increase and decrease in the floating interest rate is temporary, as it varies as per the market trends. As home loan is a long-term association with the lender, sometimes it becomes difficult to plan for the financials.

Nowadays, floating interest rate is becoming more popular and is considered as the first choice of the home buyers. Even banks and NBFCs are offering home loan interest (floating) at low and attractive rate which starts from 8.70%.

Let’s take a look at home loan interest rate offered by leading banks and NBFCs.

Home Loan Interest Rates 2018

Banks/NBFCs Interest Rate

Processing Fee

SBI 8.70% onwards Nil, Till Dec 2018
HDFC Bank 8.85% onwards Upto 0.50% of loan amount
ICICI Bank 9.00% onwards Upto 1% of loan amount
LIC Housing Finance 8.70% onwards Upto 0.50% of loan amount
DHFL Housing Finance 9.00% onwards Upto 0.50% of loan amount
Axis Bank 8.80% onwards Upto 0.50% of loan amount
Kotak Bank 8.90% onwards Max. Rs. 10000
Yes Bank 9.35% onwards Upto 0.75% of loan amount
Indiabulls Housing Finance 8.80% onwards Maximum Rs. 5000
PNB Housing Finance 9.00% onwards Upto 1% of loan amount

Note: Interest Rates offered by banks and NBFCs are subject to change as per the directives of RBI and lenders discretion.

Is it possible to shift from Fixed to Floating Interest Rate or vice-versa?

Yes, it is possible to shift or change from floating to fixed interest rates and vise-versa. To shift from fixed to floating interest rates or vice versa, conversion fee of up to 2% of the total loan amount is charged by lenders.

Loan Prepayment charges: In case you have extra funds and want to pre-pay the balance loan amount, you just need to pay the prepayment penalty that ranges between 2% – 2.50% of the principal outstanding. Pre-payment charges may differ from lender to lender.

Age Groups:

  1. Fixed Interest Rate is preferred by customers who are in their late 40’s as they have decent time in hands before their retirement. As they are safe with respect to rise in the interest rate or equated monthly installments (EMIs). Moreover, they are no longer debt ridden by this time of their age.
  2. Whereas in case of floating interest rate, people who are in their late 20’s should opt for floating rate of interest as they have plenty of time to repay the loan, as well as they may witness decrease in interest rate several times during the loan tenure.

At you can check, compare and pick from best available home loan options offered by leading banks and NBFCs. There you can pick the type of interest rate whether fixed or floating as per your choice and requirement. Also you can check your EMIs as per the selected interest rate type from paisabazaar’s online tool of Home Loan EMI calculator.

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