Should You Take A Floating Rate Home Loan?

  Author: Naveen Kumar

Home loan providing financial institutions provide fixed rate and floating rate home loans. Which type of home loan works for you? To put it very simply, the interest rate for a fixed rate loan doesn’t change during the tenure or term of the home loan. In contrast, the interest rate can be changed by the home loan providing institution during the loan term in case of a floating rate home loan.

Floating rate home loan comes with the most competitive interest rate because the home loan provider has the flexibility to increase the home loan EMI if overall interest rates rise in the future.

As far as you are concerned, a sharp rise in home loan interest rate may hike your EMI substantially and create financial difficulty. Therefore, you need to take into account your financial position before opting for a floating rate home loan. Here are some situations when a floating rate home loan will suit you.

 You are unwilling pay higher EMI for fixed rate home loan

Fixed rate home loan comes with an interest rate, typically 1-2 percentage point higher than the floating rate home loan. This is the home loan provider’s premium for providing you with a stable home loan EMI. If you are unwilling to pay this premium, opt for a floating rate home loan.

Stretched budget If you are taking a higher home loan amount by stretching your monthly budget and wish to keep the EMI low, go for a floating rate home loan since they offer the most competitive interest rates and increase your affordability.

Greater control over your finances Floating rate option gives you flexibility of prepayment and refinance without any penalty. So, you can move your home loan to any lender to refinance it and take advantage of any offers of lower interest rates. This gives you a greater sense of control over your finances. It also gives you better bargaining power to negotiate the home loan rate with your existing lender.