What are Floating Rate Home Loans?
Banks or non-banking financial companies such as Bajaj Finserv offer home loans with floating interest rates that are usually lower than the fixed rates they offer to their customers. That means even when there is an increase in the floating interest rate, it can still be lower than the earlier fixed interest rates the bank had offered.
Benefits of Taking Floating Rate Home Loans?
a) Selecting the floating rate of interest for home loan depends on the supposition that the rates may decrease in the future, thereby reducing the total cost of the loan.
b) Even when the floating interest rate exceeds the fixed interest rate, it will be only temporary, and not for the entire loan tenure. Chances are, the floating interest rate will come down after some time.
c) The borrower can save some amount of money as housing loan floating interest rates are usually lower than the fixed interest rates from the same lending organization.
d) Floating rate of interest for home loans is suitable for those who do not have adequate insight into the market, and therefore, prefer to stick to market rates.
How do Floating Rates Work?
Home loans with floating interest rates have interest rates that vary with the market. When a borrower opts for a floating home loan, he or she will be subject to a floating element added to a base rate. Therefore, the floating rate will vary with changes in the base rate. However, a floating home loan is cheaper than the fixed home loans. For instance, with a fixed interest rate of 15%, and a floating interest rate of 12.5%, the borrower can still save money even when the floating interest rate rises by 2.5%. Moreover, floating interest rates rising above the fixed interest rates are only temporary and will not be for the entire tenor of the loan. House loan floating interest rates have a drawback, as the floating interest rate changes frequently, it makes budgeting difficult. The floating rate of interest for home loans makes it difficult to plan financials on a long-term basis.
How is Floating Interest Rate Calculated?
Choosing a home loan interest rate is a matter of personal choice. What is suitable for one person may not be a good choice for another. For those planning their finances well ahead and not leave anything to chance, a fixed rate would be a better choice. However, this comes at a higher price. Before deciding, consider home loan interest rates, both fixed and floating, from various institutions. Read the fine print carefully to ensure selecting the one that offers the best advantages.
Also Know: Fixed or Floating Rate: Which is Best for Home Loan
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