Choosing between a fixed and floating interest rate determines how your monthly instalments fluctuate across a 20-year mortgage.

1. Floating Interest Rates (Repo Linked Lending Rate - RLLR)

Floating home loans are directly pegged to the RBI's benchmark Repo Rate. When the central bank reduces rates, your EMI or loan tenure decreases automatically. Additionally, RBI mandates zero prepayment penalties on floating-rate individual home loans.

2. Fixed Interest Rates

Fixed rates lock your interest percentage for a specified period (or the entire tenure), ensuring predictable EMIs regardless of economic inflation. However, banks charge a 1% to 2.5% premium over floating rates, and prepayment penalties may apply.

The Verdict

Over a 15 to 25 year horizon, floating rates have historically resulted in significantly lower cumulative interest payments for borrowers.