Calculator with house keys comparing fixed vs floating home loan interest rates

One of the first questions your bank manager will ask you is: "Do you want a Fixed Rate or a Floating Rate?". If you choose the wrong one, you might end up paying lakhs extra in interest over 20 years.

1. What is a Fixed Interest Rate?

As the name suggests, the interest rate remains constant throughout the loan tenure. If you sign up at 9%, you pay 9% for the next 20 years, regardless of market conditions.

  • Pros: Your EMI never changes. Easy budgeting.
  • Cons: Usually 1-2% higher than floating rates. No benefit if market rates drop.

2. What is a Floating Interest Rate?

This rate is linked to the RBI Repo Rate (in India). If the RBI reduces rates, your EMI goes down. If inflation rises and RBI increases rates, your EMI goes up.

  • Pros: Generally cheaper than fixed rates. No prepayment penalty (RBI Rule).
  • Cons: Your EMI amount can fluctuate.

Which Should You Choose in 2025?

In the current economic climate, **Floating Rates** are generally preferred for long-term loans like Home Loans because they come with **zero prepayment penalties**. This allows you to pay off your loan faster whenever you have extra cash.

For short-term loans (like Car Loans), Fixed Rates are standard.

Check Your Savings

Curious how a 0.5% difference in interest rate changes your EMI? Go to our Calculator and try entering different interest rates to see the difference!