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Should I choose a fixed or floating interest rate for my home loan?
Updated · CardKhoj Editorial Team
Short answer
Most borrowers in India should choose a floating rate. It is usually 1–2% cheaper than a fixed rate, falls automatically when the RBI cuts the repo rate, and carries no prepayment penalty. Fixed rates offer certainty but are rarely fixed for the full tenure — many reset after 3–5 years.
Comparison
| Floating | Fixed | |
|---|---|---|
| Starting rate | Lower | Typically 1–2% higher |
| When RBI cuts rates | Your rate falls | No change |
| When RBI raises rates | Your rate (or tenure) rises | No change during fixed period |
| Prepayment penalty | None for individuals | May apply |
When fixed might make sense
If rates are at historic lows and you have a tight budget that cannot absorb a higher EMI, a short fixed period can provide peace of mind. For a 15–25 year loan, floating has historically worked out cheaper.
Managing floating-rate risk
- When rates rise, banks usually extend your tenure first. Ask to increase the EMI instead to save interest.
- Keep your spread over the repo rate in check — if a new customer gets a much lower rate, ask your bank to reprice your loan or consider a balance transfer.
This answer is general information, not personalised financial or tax advice. Rules, rates and limits change — confirm with your bank, the RBI or a qualified adviser before making decisions.