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For A 30-Year Home Loan, Should I Go For Fixed Rate?

Adhil Shetty

I am going to take a home loan for 20-30 years. I am contemplating whether to go for a fixed rate loan or a floating rate one. Please advise. — M. Ashwin

Answer:

In a loan with a floating rate interest, the applicable interest rate may change from time to time depending on the fluctuation in the underlying benchmark rate such as the MCLR, whereas under the fixed rate loan, the interest rate remains same for the agreed tenure. There may also be loans that may offer a fixed rate for a predetermined period after which they automatically switch to a floating rate.

If your loan tenure is not very long and you don’t want interest rate fluctuation to bother you, a fixed rate system should be your choice. However, remember that you may be charged a penalty if you repay the loan early or transfer the loan. You won’t benefit from falling interest rates but you’ll be cushioned from rising rates as well.

If you are planning to avail the loan for a long tenure — which 20-30 years is —  the interest rate fluctuations you’ll experience will average out. Hence you should consider this option.

Normally, a fixed-rate loan is offered by banks for tenures up to 10 years, whereas floating rate loan tenures may be up to 30 years in most cases.

Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil.