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What is a Fixed Rate of Interest?

A fixed rate of interest is offered on a mortgage by a lender when a buyer opts to make repayments in fixed monthly installments over the entire tenure of the loan irrespective of the interest rate cycle. For those who want certainty in their repayment schedule a fixed interest rate on the home loan can be a great option.

Benefits of opting for a fixed interest rate:

  • Your EMI remains the same irrespective of the conditions prevailing in the market
  • It is a great option for those who are good at budgeting and do not want their monthly outgo to go haywire because of market conditions
  • Gives the borrower a sense of security and peace of mind.

Drawbacks of opting for a fixed interest rate:

  • The major disadvantage of a fixed rate of interest is that it is at least 1-2.5% higher than a floating rate of interest.
  • The other disadvantage of such a loan is that if the interest rates decrease significantly, a borrower who has opted for a fixed rate of interest does not get any advantage.

As a borrower, you must also cross check with your bank whether you are allowed to fix your interest rate for the entire loan tenure or only for a few years. If you perceive that the interest rate cycle will be on the rise for the next few years, it’s a good idea to be locked under the regime of a fixed interest rate on your home loan.