Floating Rate Home Loans

Author: Habibulla Antule

Author: Habibulla Antule

Generally, the bank offer home loans with two interest rate options-fixed and floating rate. Choosing interest rate type between fixed rate and floating rate is a matter of personal choice for the home loan borrower. Although, many borrower opt for fixed rate home loan in the terms of financial flexibility. In floating rate home loan, the interest rate keeps changing with the current interest rates in the market. This means, the interest rate on home loan will increase or come down depending on the economy situation in the country. There are various advantage for floating rate home loans. The floating rates suit to almost all types of borrowers, because the floating rates are lower than fixed rate home loan and the difference is up to 5%. The interest rate of the floating rate home loan is determined by after every three months. If the interest rate comes down, then the benefit of lesser interest rate gets the home loan borrower. Even if the floating rate increases, it won't go beyond the fixed rate. In case, the rate of interest increases suddenly, then it will be for some period of loan. So, it doesn't matter, if the floating rates fluctuates. Most of banks are not transparent on home loan floating rates. When interest rate increase, the banks immediately charge the revised floating rates to the existing customer. Another thing is that, the bank offers new reduced floating rates for new borrowers, but the existing customer doesn't get the benefit of lesser rate. If you think that you are paying higher EMIs compared to others, then switching is the option open for you. There are many banks offer floating rate home loans at attractive rates, you can choose the rate that you can afford easily. But, it makes sense only, if the cost of switching is lower than the saving made from the EMI. The switching cost is determined by the prepayment charges on the old loan and processing fee on the new loan. About the Author:

Habibulla Antule is a financial advisor and consultant and have provided his expertise to many financial institutions for loans and insurance

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