Everything You Must Know About Floating Rate Home Loans
The demand for homes in India is soaring. Unfortunately, spiralling property prices and limited savings have made homeownership a distant dream for many. Luckily, home loans have emerged as a viable solution, offering financial accessibility and additional benefits like tax deductions for individuals.Recent data on ‘Sectoral Deployment of Bank Credit’ from the Reserve Bank of India (RBI) reveals a significant INR 10 lakh crore increase in home loans over the past two years, highlighting the growing popularity of this loan type across the country.
Choosing a home loan is a significant financial commitment that requires careful consideration. One crucial decision is whether to opt for a fixed or floating interest rate. This article provides a comprehensive overview to assist you in making an informed choice.
What Is a Floating Interest Rate?
Typically, banks offer two kinds of home loan interest rate options: floating and fixed. A floating interest rate on the home loan means your monthly EMI can change over time. This rate is linked to a benchmark set by the lender, which moves up and down based on market conditions.
For example, if the RBI increases its repo rate, your home loan interest rate is likely to rise as well. This can lead to higher monthly payments. Conversely, if interest rates fall, your EMI amount will also decrease.
A fixed home loan interest rate, on the other hand, means your payments stay the same for the entire loan tenure, regardless of inflation or other market fluctuations.
Floating vs Fixed Interest Rate: Key Differences
Criteria |
Floating Interest Rate |
Fixed Interest Rate |
|
Interest Rate |
Variable, linked to a benchmark rate set by the RBI |
Fixed throughout the loan tenure |
|
EMI Predictability |
Unpredictable, can fluctuate with changes in the market rate |
Predictable and stable EMIs, irrespective of market rates |
|
Prepayment Penalty |
Usually nil |
A small percentage on the outstanding balance will typically be charged |
|
Suitability |
Borrowers who expect interest rates to fall or those planning to prepay the loan |
Borrowers who prefer stability and budget certainty |
|
Risk |
Interest rates may rise or fall, leading to fluctuating EMI amount |
There is nothing to gain or lose even if interest rates fall or rise during the loan tenure |
Choosing Between Floating and Fixed Interest Rates
Selecting the ideal home loan interest rate is a personal decision. Factors such as financial circumstances,foreclosure plans, and risk tolerance play a crucial role. Borrowers anticipating a significant financial influx might lean towards a floating rate for its flexibility.
Similarly, those prioritising stability and predictability may find a fixed rate more suitable. Ultimately, the best option depends on individual financial plans and expectations.
Wrapping Up
Taking a home loan is a significant financial decision with long-term effects. It's essential to partner with trusted lenders like IndusInd Bank to guide you through the process and find a loan that aligns with your financial goals.
With options for both fixed and floating interest rates, you can easily apply for a home loan online. IndusInd Bank offers features such as:
- Competitive interest rates
- Simple documentation and no hidden fees
- Doorstep services with fast processing of your application
- Easy home loan balance transfer facility
- Quick loan approval
- Flexible repayment options including wide-ranging tenures up to 30 years
- Zero prepayment charges for floating-rate home loans
- Wide range of pre-approved projects
- Tailored solutions for NRIs
- Dedicated customer support
With a thriving housing market and easily accessible home loans, this may be a good time to apply for a home loan, online or from a bank branch. However, before you do so, make sure to gain a thorough understanding of how floating and fixed interest rates work.
