With a fixed interest rate, home loans offer the borrower an option to repay the loan amount with fixed monthly instalments for the entire tenure of the loan. And fixed-rate mortgages are independent of the market conditions, i.e., inflation and deflation will not change the rate of interest for these loans. Majorly the borrowers cover their loan repayment with the initial monthly payments and the instalments made, later, service the principal amount of the loan.
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Fixed Interest Rates for a Home Loan by the Banks
- The HDFC home loan fixed interest rate ranges between 7.20% to 8.20% per annum, which is set for a period of two and gets revised after the completion of the two-year tenure.
- Axis Bank’s fixed-rate home loan interest rate stands at 12% per annum.
Advantages of Taking Fixed Rate Home Loans
- The interest rate remains constant even if the market conditions fluctuate.
- Taking a fixed rate home loan helps in budgeting and long-term planning because one can plan the budget according to the fixed monthly payments.
- Financial security is offered to the borrowers because of the minimum chances of future risks.
Difference Between Floating Rate Home Loan and Fixed Rate Home Loan
In fixed-rate home loans, you do not have to worry about the market fluctuation resulting in an interest rate change. The interest rate remains constant throughout the loan tenure in such kinds of loans. On the other hand, floating rate home loans have variable interest rates that change according to the conditions of the market. Loans that are offered with floating interest rates are associated with the floating element as well as the base rate. Thus, with the changing base rate, the rate of interest also changes. But floating rate home loans are more economical than fixed-rate home loans because though the interest rate is constant in fixed home loans, it is higher than the floating interest rates.
The Working of Fixed Rates And Floating Rate Home Loans
The Reserve Bank of India did come up with a statement where it asked the banks to reduce the rate of interest for all the customers. But the banks decrease the current rate of interest for new customers which are subject to change with market fluctuations. And the existing customers have to pay the interest rate which was initially set for them and does not enjoy the changes in the rate of interest when the market is up. In case, the interest rates are reduced, the EMIs are not altered, only the loan repayment tenure gets modified.
Fixed-Rate loans also have certain clauses which are about the variable interest rate during market fluctuations. But the reset clause is always subjected to modifications and revisions. The conditions of the clause will be according to the bank, but the rate can be changed in case of heavy market fluctuation and a fixed period.
Important Real estate Terms You Should Know
| Written Down Value | What is Written Down Value |
| Crowdfunding | What is Crowdfunding |
| National Building Codes | What are National Building Codes |
| Building Bye-Laws | What is Building Bye-Laws |
| Construction Loan | What is Construction Loan |
| Benami Property Transaction Act | What is Benami Property Transaction Act |
| Balloon Payment | What is Balloon Payment |
| Bare Shell and Warm Shell | What is Bare Shell and Warm Shell |
| Capital Gains Tax | Capital Gains Tax |
| Common Areas in Apartments | What is Common Areas in Apartments |
FAQs
Which loan is the best floating, or fixed?
It depends on the requirements of the borrower.
Do home loans have a fixed interest rate?
Yes, if you choose a fixed-rate home loan, you will get a constant rate of interest
Is a 3% rate of interest good?
Yes, a 3% mortgage rate is a good one.
What is a fixed interest rate while buying a home?
It is the rate of interest that you will have to pay for the entire tenure of loan repayment.
