Swapping of home loans refers to switching from fixed rate loans to floating rates and vice versa. This is done in order to take advantage of the change in interest rates or to protect from the interest rate changes.

Interest rates in general and housing loan rates in particular have been rising in the recent past. With the increase in the repo rates, reverse repo rates, and cash reserve ratio (CRR), most banks have increased their interest rates on housing loans.

In such a scenario, the fixed rate borrowers are in a safe zone. They are insulated from the vagaries of interest rates. Borrowers who opted for the floating rate loans are facing the brunt. The critical question for them is whether they should continue with the floating rate or switch over to a fixed rate loan.

In case of fixed rate loans, the interest rate remains fixed for the entire tenure of the loan. So the borrower is totally insulated from the market movements . On the contrary, in case of a floating rate loan, the interest rate is linked to the market rates of interest, which keep fluctuating. Accordingly, in case the market interest rates go up, the interest rate on the home loan also goes up, and vice versa.

The frequent increases in interest rates have upset the budgets of the borrowers. Does it make sense to lock-in at present interest rates or should one switch from floating to fixed rate? Borrowers should not panic and rush to convert a long tenure floating rate housing loan to a fixed rate one.