1. Fixed means stable only for the period actually stated
A true fixed rate remains fixed for the period defined in the contract. Some products are fixed initially and floating later, so the label on an advertisement is not enough.
Tip: Ask: fixed for how long?
2. Floating moves with a benchmark
Floating loans link to a benchmark plus spread and reset at defined intervals. A reset can affect EMI, tenure or both depending on the loan structure.
Tip: Floating does not mean the rate changes every day.
3. Falling and rising rates create opposite outcomes
Floating borrowers can benefit from falling rates but face higher borrowing cost when rates rise. Fixed borrowers gain certainty but may not automatically benefit from lower market rates.
Note: Future interest rates are uncertain.
4. Compare mechanics, not only today's rate
Review benchmark, spread, reset frequency, switching terms and current prepayment rules for the specific loan.
Tip: Contract mechanics matter as much as the opening rate.
5. Quick check
A loan is “fixed for 2 years, floating thereafter.” Is it fixed for the full tenure?
Answer: B - The pricing structure changes after the initial fixed period.