What is the difference between a fixed-rate and a floating-rate home loan?

The key difference between a fixed-rate home loan and a floating-rate home loan is how the interest rate is determined over the loan tenure.

In a fixed-rate home loan, the interest rate remains constant throughout the tenure once decided at the time of availing the loan. Your EMI amount will not change in a fixed-rate loan, which allows you to plan your finances and repayments more effectively.

In contrast, a floating-rate home loan has an interest rate linked to an external benchmark like the RBI's repo rate. So, if the benchmark rate rises or falls, your interest rate and EMIs will change accordingly. Banks offer floating rates based on a spread over the benchmark rate.

While fixed rates offer stability despite market fluctuations, floating rates start cheaper but carry the risk of varying EMIs. Evaluate whether you want rate consistency through fixed interest or potential savings but uncertainty of fluctuating rates through floating interest before deciding which type of home loan works best for you.