What Is a Fixed Interest Rate Home Loan? – Everything You Need to Know

Interest rate is the foremost factor that you should consider while looking for a home loan. It not only determines the  EMI you have to pay, but also the tenure.

There are two types of interest rates offered on a home loan – fixed and floating. As the name suggests, the floating interest rates vary during the tenure, whereas the fixed rate remains constant. If you are planning to get a home loan at a fixed rate of interest, then here’s what you should know.

Here is a short guide to help you understand fixed interest rate home loans.

What Is a Fixed Interest Home Loan?

A home loan in which the interest outgo remains the same throughout the tenure is called a fixed interest home loan. In such types of home loans, EMI remains unaffected by any market conditions. Usually, in fixed interest rate home loans, the major portion of interest outgo is serviced in the initial years of the tenure followed by the payment towards the principal in the later part of tenure.

Benefits of Fixed Interest Home Loan

  • Unaffected by market rates

Typically, fixed interest rate home loans are unaffected by market conditions. No economic upheaval impacts the rates.

  • Helps in better financial planning

It is easier to make and follow your budget with a fixed interest rate home loan. It is also helpful in long term financial planning.

  • Certainty in EMI amount

There is no fluctuation in home loan interest rate, which means your EMI remains certain. You are aware of the amount of EMI you have to shell out every month without any confusion.

  • Financial security

There is no risk of a rise in interest rates when you avail a home loan with a fixed interest rate. It enables a sense of financial security.


  • Fixed interest rates are usually higher than floating interest rates
  • You would not be able to take the benefit of reduction in interest rates if market rates fall.

Difference between Fixed Interest Rate and Floating Interest Rate

Fixed interest rate home loan Floating interest rate home loan


The interest rate remains fixed throughout the tenure The interest rate varies as per the benchmark rate
Typically, fixed interest rate is slightly higher than the floating interest rates


Lower than the fixed interest rate


You need to pay prepayment charges when you avail a fixed interest rate on a home loan


As per the RBI mandate, there are no prepayment charges on a home loan with a floating interest rate.


When Should You Choose a Fixed Interest Rate Home Loan?

You can choose a fixed interest rate home loan when:

  • You are comfortable with the current interest rates and want to lock it for the entire tenure.
  • You want stability in the interest rate and certainty in the EMI amount throughout the tenure.
  • You anticipate a hike in interest rates in future due to socio-economic conditions.

While a fixed interest rate home loan can be beneficial if you are looking for stability in your EMI outgo, it can increase the cost of your borrowings if the interest rates decrease in future. However, when you avail a fixed interest rate home loan, you should ensure if the rates are fixed for a specific period or the entire period of the loan by confirming it with the lender.