Fixed rate home loan

What is Fixed rate home loan?

As the name implies, fixed rate home loan allow the repay­ment in fixed equal monthly install­ments over the entire period of the loan. The inter­est rates are fixed and don’t change with mar­ket fluctuations.

Ben­e­fits of Fixed rate home loan

Fixed rate of interest

The inter­est rate is fixed, in spite of fluc­tu­a­tions in the inter­est rate. The bor­rower pays a fixed Equated Monthly Install­ment (EMI) for a fixed num­ber of years. In an econ­omy of increas­ing home loan inter­est rate, Fixed rate home loan are the ideal option. The bor­rower enjoys a lower inter­est rate in spite of rise in inter­est rates.

Bud­get­ing & Planning

Fixed rate home loan also helps in bud­get­ing and plan­ning. The bor­rower is cer­tain about the cash out­flow on a monthly basis.

Draw­backs of fixed rate home loans

Falling inter­est rate scenario

The major draw­back of fixed rate home loan is dur­ing a falling inter­est rate sce­nario. Even if the inter­est rate falls, inter­est on fixed rate home loans remains constant.

Higher rate of interest

Fixed rate home loan are cost­lier than float­ing rate inter­est home loans. The rate varies from 1.5–2%.

Ambi­gu­ity in rate of interest

There are many instances where the fixed rate home loan is not truly fixed. It means the fixed inter­est home loan is fixed for a cer­tain period/years and post com­ple­tion of the period/years, the rate of inter­est changes. Dur­ing the paper work phase of tak­ing a home loan, this needs to be clarified.

Related posts:

1. Fixed or Float­ing rate home loan: Which is Better?
2. Float­ing rate home loan
3. HDFC Fixed rate home loan scheme — Fixed First
4. ICICI Bank launched Two New Fixed-Rate Home Loan Products
5. Is fixed rate home loan really fixed?