InvestorQ : I have taken a fixed rate loan for my home loan. It is the right choice, right?
Ankit Patil made post

I have taken a fixed rate loan for my home loan. It is the right choice, right?

Manisha Mehta answered.
3 years ago

There’s no way of telling whether it is a right choice or not considering no one can predict how interest rates work.

In case of fixed rate loan, the interest rate stays fixed and doesn't change with market fluctuations; in this type of loan the rate of interest is capped at 1-2.5% higher than floating rate home loan

Although it must be mentioned that experts advise borrowers to opt for floating rate loans for various reasons:

-A fixed rate loan can be a drawback when considered for a higher loan amount as rates are bound to come down even if they are high at the time of taking the loan.

In such a situation, imagine repaying the same amount every time, even at a time when rates reduce.

- Additionally, fixed rate loans come with 'reset clause'. This means that fixed is not as “fixed” as you’d want it to be. Many fixed rate loans offered by banks are only partially fixed, and there would be a clause in the loan document that if the rate is increased beyond a certain limit, the bank can automatically turn your fixed rate loan into a floating rate loan. This means that the rate of interest is subject to revision from time to time. Though the nature of the clause varies across banks, it is usually invoked either after a fixed regular period or a sharp spike in interest rates.

So, you might just be better off opting for a floating rate loan especially if the economy promises a sharp fall in interest rates in the near future.