Fixed vs Floating Interest Rate
A fixed rate stays the same for the tenure (or an agreed period), so the EMI never changes; a floating rate tracks a benchmark such as the repo rate and can move up or down over the life of the loan.
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Choosing between a fixed and a floating interest rate is one of the first decisions on most loans, and it comes down to certainty versus flexibility.
A fixed rate stays the same for the whole tenure, or for an agreed period after which it may reset. Your EMI does not change, which makes budgeting predictable and shields you from rate hikes — but fixed rates usually start higher than floating ones, and you may not benefit if market rates fall. They suit borrowers who value certainty and expect rates to rise.
A floating rate tracks an external benchmark and moves up or down over the life of the loan. Since October 2019, most new floating retail loans in India are tied to an external benchmark such as the repo rate via an RLLR, so policy changes pass through faster and more transparently than under the older internal MCLR system. The upside is that you gain when rates drop; the risk is that your EMI (or tenure) can rise when they climb. Many borrowers accept that variability for a usually-lower starting rate.
There is no universally better choice — it depends on your view of rates, your tolerance for a changing EMI, and how long the loan runs. To see why even a small gap matters, note that a 0.5% move on a ₹50,00,000 / 20-year loan is worth about ₹3,82,832 in total interest.
These figures are estimates; confirm current fixed and floating quotes with your lender. Try the home loan calculator and read how the interest rate affects your EMI.