What is Floating Interest Rate on Home Loan ?

A floating rate of interest on a home loan means that your interest rate can go up or down based on market conditions. So, if the rates increase, your EMI will increase, and if they drop, you might save money. This is a simple explanation of what is floating rate of interest in home loan. To help you understand it better, let me tell you what it is in more detail and how it is different from fixed interest rate.

What Is Floating Interest Rate On Home Loan?

A floating interest rate on a home loan changes periodically as per the market conditions. This means the rate can go up or down, and affect your monthly payments accordingly. It is different from the fixed interest rate so let me explain how:

• A fixed rate stays the same during your loan. You will always know what your EMI will be. On the other hand, a floating rate can change, so your payments can go up or down over time.

• With a fixed rate, you can easily plan your budget since you know exactly what you'll pay for the whole loan. With a floating rate, you might save money if interest rates drop, but you could also end up paying more if rates rise.

• Fixed rates won’t change based on what’s happening in the market, but floating rates will adjust according to economic trends. So, if you go with a floating rate, there’s a chance to save if rates go down, but there’s also some risk if they go up.

I hope this answers your query: what is floating home loan interest rate. 

If you have ever taken a personal loan, home loan, or commercial loan. you must have wondered about the terms ‘ fixed interest rate’ and ‘what is floating interest rate’. Both of them have their own pros and cons. Depending on your long-term financial goals, you can choose between the two. Keep reading to make an informed choice. 

When the interest rate levied on the home loan is subject to changes based on market rates, it is deemed as the floating interest rate. Since, the rate undergoes changes on a qaulterkly regime, economic factors and marker rates are two important factors. 

You must know that a floating interest rate home loan is made up of two different components. Those are the index and the spread. 

This can be deemed as a measure of interest rate ( market/ government )

This can be deemed as the extra amount incurred by banks to cover their profit margin, administrative costs, credit risks, etc. 

Now that you know what is floating interest rate. You must remember that floating interest rates are generally lower than fixed interest rates. If you are sure, the interest rate will be higher in the future. You should opt for a fixed interest rate as the market is unpredictable. 

The rate of interest can get higher or get lower. If you want to have an idea about what is floating interest rate on home loan is, you can look at the current market index or benchmark the rate from the last few years. 

They are also called adjustable-rate home loans. This is all from my end on what is floating interest rate.