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What is fixed and floating rate?

There are two different modes of interest viz. Fixed and Floating rates. Floating rate is also called as Variable rate. In fixed rate, the rate of interest is fixed, and will not change during entire period of the Loan. Fixed rate will be higher than floating rate, as it is not affected by market fluctuations. In floating rate or variable rate, the rate of interest changes depending upon market conditions. It may increase or decrease, depending upon the change. The repayment period also varies with these changes in rates, but the equated monthly installment remains the same. Presently, floating rate is most favoured by lending institutions. If the repayment period is more than five years, it is advisable to prefer fixed rate.