Everything you must know about Floating Rate Home Loans
Among the various types of home loans available, floating rate home loans are a common choice due to their potential for lower initial interest rates and flexibility. Floating rate home loans have interest rates that fluctuate based on market conditions.
The interest rate on these loans is tied to a benchmark rate, usually the Reserve Bank of India’s (RBI) repo rate. When the benchmark rate changes, the interest rate on your home loan also changes. Let us understand everything about floating rates home loans so that you can take a call while taking a loan for buying your dream home.
When you opt for a floating rate home loan, the interest rate you initially pay is often lower than that of a fixed-rate loan. However, this rate is subject to change over the loan tenure, depending on the movement of the benchmark rate. If the benchmark rate rises, your loan interest rate and, consequently, your EMI will increase. Conversely, if the benchmark rate falls, your loan interest rate and EMI will decrease.
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The initial interest rates for floating rate home loans are usually lower than fixed-rate home loans. This can result in significant savings, especially in a declining interest rate scenario.
When the RBI reduces the repo rate or when the benchmark rate decreases, the interest rate on your floating rate home loan also reduces, lowering your EMI or loan tenure.
Also, most banks and financial institutions do not charge a prepayment penalty on floating rate home loans. This allows you to make additional payments or repay the loan early without incurring extra costs.
The primary disadvantage of floating rate home loans is the uncertainty of
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