What is the difference between Fixed & Floating Interest Rate for LAP & Home Loan

By: Sajid Pasha Mohammed, Zonal Business Head, Fedbank Financial Services

Introduction

As we all know that taking a Home Loan or Loan Against Property (LAP) is the biggest financial decision of one’s entire life.

Likewise, choosing the best interest rates is also a part of your decision making before taking Home Loan or Loan Against Property (LAP).

Home Loan or Loan Against Property(LAP) interest rates are one of the most important factors that every prospective borrower considers before applying for the loan. Interest rate offered by financial institutions is one of the most important factors to be considered when finalizing the desired Home Loan or Loan Against Property (LAP).

Finalizing on just the interest rate percentage does not make things simple because interest rates are further categorized into two types named as Fixed interest rates and Floating interest rates.

Customers opting for Home Loan or Loan Against Property-LAP have the option to choose either type of interest rates.

Therefore, we need to understand about fixed and floating interest rates in detail.

Fixed and Floating Interest Rate Comparison

Fixed Interest Rate	Floating Interest Rate
Lesser Risk	Higher Risk
Fixed EMIs	EMIs change as per interest rate or MCLR
Budget planning possible	Difficult to budget or manage financials
Higher Interest Rate	Lower Interest Rate
Not affected by financial market conditions	Affected by changes in the financial market
Sense of security	Generates savings
Suitable for short/medium term (3-10 years)	Suitable for long term (20-30 years)