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Fixed or floating rate on your first home loan?
The rate type decides whether your EMI can change. Here is what each means, and what the rules say.
A floating rate moves with a benchmark. Since October 2019, RBI has required banks to link new floating-rate retail loans to an external benchmark, such as the repo rate. A fixed rate stays the same for a set period. Many “fixed” home loans are fixed only for the first few years, then become floating, so read the terms.
Fixed rate vs Floating rate, side by side
| Factor | Fixed rate | Floating rate |
|---|---|---|
| EMI | Stays the same during the fixed period | Can go up or down when the benchmark moves |
| Starting rate | Usually set higher than the bank’s floating rate | Usually lower at the start |
| Prepayment charges | Banks may charge to prepay or close early | RBI bars banks from charging individuals to prepay or close a floating-rate home loan |
| When rates fall | You do not benefit until the fixed period ends | Your rate falls with the benchmark |
| When rates rise | You are protected for the fixed period | EMI or tenure goes up |
| Switching | Possible, often for a fee | RBI requires lenders to give borrowers the option to switch to a fixed rate at reset |
What a 1% rise does to a floating loan
Illustrative example only. These are not Reeva prices or a bank quote; change the numbers to your own in our calculators.
On ₹50 lakh over 20 years, moving from 8.5% to 9.5%:
- If the EMI changes: it goes from about ₹43,391 to ₹46,607, about ₹3,215 more a month.
- If the EMI stays the same: the loan runs about 69 months longer. Banks often do this first, so ask which they will apply.
- Total interest over 20 years rises from about ₹54.14 lakh to ₹61.86 lakh.
The same maths works in reverse when rates fall. See it for your own loan in the EMI calculator.
Our honest verdict
Who should pick which
Fixed rate: a good fit if…
- A fixed EMI matters more than the lowest rate
- Your budget has little room for an EMI rise
- You do not plan large prepayments
Floating rate: a good fit if…
- You want to prepay whenever you have spare money, without charges
- You can absorb some EMI change
- You want falling rates to reach you quickly
FAQ
Questions buyers ask
What is an external benchmark?
A published rate outside the bank’s control, such as the RBI repo rate. Floating home-loan rates are the benchmark plus a spread, and the bank must reset them at least once every three months.
If rates rise, will my EMI go up?
Either the EMI rises or the tenure stretches. Many banks lengthen the tenure first. RBI requires them to explain the choice and let you choose to raise the EMI instead.
Can I prepay a floating-rate home loan for free?
Yes. RBI does not allow banks to charge foreclosure or prepayment penalties on floating-rate loans to individuals for non-business purposes.
Is a “fixed” loan fixed for 20 years?
Often not. Many are fixed for a few years and then convert to floating. Ask for the fixed period in writing.
How much can I borrow?
That depends on your income and other loans. Try the eligibility calculator.
Still weighing it up?
Tell the Reeva team what you are deciding between. We will call back and talk it through honestly, with no pressure to buy.