Must I switch to a fixed rate loan?

I have two queries:

1. With the changing interest rate scenario, will it be wise to convert my floating rate loan to a fixed rate one?

2. Up to what level can the interest rate rise?

My loan is for a tenure of 15 years.   

- D Singh

Since you signed a floating rate loan, your current rate must have increased already to around 9% - 9.50 %. Please check the latest position with your lender. The reason you are not aware of the change is that lenders normally keep the Equated Monthly Installment the same and increase the loan tenure when rates increase.

True fixed rates are those that remain constant throughout the tenure of the loan. They are currently at around 10.50%. This means you pay a higher amount (premium) of around 1% to 1.50% to get the surety of a fixed rate.

Additionally, you will also have to pay a fee for the switch to a fixed rate loan from a floating rate loan.

So, not only is the interest higher, but you will have to pay a fee too.

A floating rate works out well for those who are in it for the long-term and do not want to pre-pay their loans as soon as possible. So, unless you are completely risk averse (and willing to pay the price for it), it may be advisable to stick to a floating rate.

I don't think anybody can hazard a guess on interest rate movements in the long term but very clearly in the next few months interest rates are expected to remain steady but may increase slightly to around 0.25% – 0.50%.

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