Fixed vs Floating Interest Rates
Every loan comes with a choice: lock in a fixed rate for certainty, or take a floating rate that moves with the market. The right answer depends on how much rate volatility you can absorb and where interest rates are headed.
Fixed Rate
A fixed interest rate stays the same for a specified period, or the entire loan tenure, depending on the lender. Your EMI never changes, which makes budgeting simple. In exchange for that certainty, fixed rates are usually priced 0.5%–1.5% higher than the equivalent floating rate at the time you borrow, and most Indian lenders only offer "fixed" for a few years before switching you to floating anyway.
Floating Rate
A floating (variable) rate is linked to an external benchmark — for home loans in India, this is almost always the RBI repo rate via the Repo Linked Lending Rate (RLLR). When the RBI changes the repo rate, your lender adjusts your interest rate accordingly, usually at your next reset date. Your EMI (or tenure, depending on the lender's policy) moves with it.
Worked Example: ₹30,00,000 Loan, 20 Years
Say you borrow ₹30 lakh for 20 years. A fixed rate might be quoted at 9.5%, while a floating rate starts lower at 8.5%.
| Scenario | Rate | EMI | Total Interest |
|---|---|---|---|
| Fixed @ 9.5% | 9.5% | ₹27,964 | ₹37,11,360 |
| Floating @ 8.5% (stays flat) | 8.5% | ₹26,035 | ₹32,48,400 |
| Floating (rises to 9.5% after 3 yrs) | 8.5% → 9.5% | ₹26,035 → ~₹28,600 | ~₹35,50,000 |
Figures are illustrative and rounded for comparison — use the calculator below for your exact numbers.
How to Choose
- Choose fixed if you need predictable EMIs for strict budgeting, or if rates are near a cyclical low and expected to rise.
- Choose floating if you can absorb some EMI variability, believe rates will fall or stay flat, or want the flexibility to prepay without penalty (see below).
- Floating-rate home loans to individual borrowers cannot carry a prepayment penalty under RBI rules, while fixed-rate loans often can — a real cost difference if you expect to prepay.