The main reason one tends to take a home loan on flexible interest rates is because as rates fall, the borrower stands to benefit. Effective home loan interest rate means the rate after you have taken tax benefit on it. Effectively, the first year interest payout becomes Rs 3.4 lakh (Rs 3.8 lakh minus Rs 40,000). The effective interest rate, therefore, is 8.51% (Rs 3.4 lakh upon Rs 40 lakh of loan). Effectively, the first year interest payout becomes Rs 3.2 lakh (Rs 3.8 lakh minus Rs 60,000).

Source: Economic Times September 15, 2016 04:37 UTC