Fixed vs Floating Interest Rate: Which is better for home loan?

financialexpress.com:

While taking a loan, particularly a home loan, the choice between a floating interest rate and a fixed interest rate is a crucial decision that borrowers make depending on the circumstances. Each option comes with its own set of advantages and considerations, catering to different financial circumstances and risk tolerances.

A fixed interest rate entails a consistent rate throughout the loan tenure, providing borrowers with payment predictability and stable budgeting. This option appeals to those seeking financial security and protection against potential market rate hikes.

A floating interest rate flows with prevailing market benchmarks like the repo rate. It presents the possibility of lower interest payments when the repo rate decreases.

Adhil Shetty, CEO, Bankbazaar.com, says, “Fixed rates provide a safety net against market volatility and are suitable for those seeking consistent financial planning. On the other hand, floating rates cater to individuals willing to navigate uncertainty, aiming to capitalise on potential interest savings.”

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A floating interest rate, also known as a variable or adjustable interest rate, is a rate that changes periodically in response to fluctuations in the market benchmark rate, such as the Reserve Bank of India’s (RBI) repo rate or other external benchmarks chosen by banks. When the benchmark rate goes up or down, the interest rate on your home loan also changes, affecting your monthly instalment. Floating rates typically consist of two components: a benchmark rate and a bank-specific markup.

Potential for Savings: During periods of falling interest rates, borrowers with floating rates may benefit from lower