Fixed Rate or Floating Rate...on which have you taken a loan? Where is your benefit amid the reduction in repo rate?
If the repo rate is reduced once again today, then those who have taken loans on a floating rate will benefit. But in this situation, what should those who have taken a loan on a fixed rate do? How will they get this benefit?
Today is the day of the results of the RBI MPC meeting. RBI Governor Sanjay Malhotra will announce the decision of this meeting which lasted for 3 days at 10 am. In the meeting of February and April 2025, RBI has cut 25 basis points twice. It is expected that this time also the governor will give good news. Meaning, a reduction in interest rates can be announced. If this happens, then the loan takers will get the benefit once again because this will also make their loans cheaper.
But if you have taken a home loan on fixed interest rates, then you will not get the benefit of this because the interest rates of Fixed Rate Loan remain the same for the entire period, whereas the interest rates of Floating Rate keep changing from time to time. If the repo rate decreases today, then those who have taken a loan on Floating Rate will benefit. But in this situation, what should those who have taken a loan on fixed rate do? How will they get this benefit?
What should those who have taken fixed rate loan do?
The advantage of choosing the option of fixed rate home loan is that at the time of taking the loan, you know how much EMI you have to pay. If you think that interest rates may increase in the future, then you can decide to take a loan on fixed rate. But right now this is the period of reduction in interest rates. It is believed that this series of reduction will continue for some time. In such a situation, the option of fixed rate loan is not beneficial for you, but a loss.
Anyway, the cost of fixed rate loan is usually a little higher than floating rate loan. If this difference is negligible, then you can remain on fixed rate, but if this difference is more, then it would be better if you switch from Fixed Rate to Floating Rate. With this, you will also start getting the benefit of reduction in interest rates and the burden of EMI will be slightly less. Apart from this, another benefit of switching from fixed rate home loan to floating rate loan is that if you think about making future prepayment, then no fee is charged from you, whereas in fixed rate loan, there may be a fee for making prepayment.
Banks can levy charges in exchange for the facility of switching
Before switching from fixed rate loan to floating rate loan, carefully look at the terms and conditions of your loan. Some lenders allow switching, but you may have to pay a fee or other charge for this. You can contact your bank for information on the process of switching. Also keep in mind that a floating rate loan will benefit you when interest rates fall, but if interest rates rise, your loan may become expensive in the future.
Keep these things in mind
Consult your financial advisor before switching.
Compare the switching terms from all lenders.
Make the best decision according to your financial situation and needs.
If you have any questions or doubts regarding the fee for switching, contact your bank.
