Home loan in a context of rising rates: Fixed rate or variable rate home loan, which one to turn to? – Should I opt for a fixed rate or variable rate mortgage?

Home loan in a context of rising rates: Fixed rate or variable rate home loan, which one to turn to? – Should I opt for a fixed rate or variable rate mortgage? | The economic periodhome loans Should you opt for a fixed rate or floating rate home loan?”/>home loans Should you opt for a fixed rate or floating rate home loan?” property=”og:description”/>

Updated: Nov 04, 2022, 1:11 PM IST

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Should I choose a fixed rate mortgage or a variable rate mortgage?

Consecutive hikes in repo rates by the Reserve Bank of India (RBI) and rising mortgage interest rates have brought the focus back to fixed rate mortgages. It’s important to understand the difference between fixed and variable rates if you’re considering a home loan. Let’s find out how they work and how they will impact your home loans

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What is a fixed rate mortgage?

A fixed rate home loan means that the interest on the home loan stays the same for the duration of the loan repayment.

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What is a variable rate mortgage?

In a variable rate home loan, the interest rate on the loan changes based on market interest rates over the life of the loan.

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Advantage of the fixed rate mortgage

An advantage of fixed rate mortgages is that the monthly equivalent payments (EMI) are prefixed. As the borrower knows exactly what he has to pay during the term of the loan, his monthly budget will not be affected by rising interest rates.

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Borrowers should note this

Borrowers should keep in mind that interest rates for fixed rate loans are generally higher than interest rates for variable rate loans. In a fixed rate loan, banks bear the risk of future rate increases. Thus, banks offer a higher interest rate on fixed rate loans compared to variable rate loans.

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Lower interest rates: when can you take advantage of them?

Borrowers with fixed rate loans also cannot take advantage of lower interest rates.

If banks reduce the interest rate on home loans during the low rate regime, the benefit will only be passed on to variable rate borrowers.

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