Why should you choose a Floating rate Home Loan?
13 Jun 2022
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Taking a home loan is one of the most common ways to finance the purchase of your dream home. The home loan provider can either charge you a floating or fixed rate of interest on your debt. While a fixed interest rate can help you get a sense of security, a floating interest rate can potentially help you generate savings. For this reason and a few more, many people prefer to procure a floating rate home loan.
If you are wondering what is floating rate of interest in home loan, here’s a quick guide to help you understand.
What is floating rate home loan?
A floating rate home loan is one in which the interest rate charged by the lender changes with the market interest rate. This means that, if the interest rate charged in the market comes down, the interest rate charged on your home loan comes down as well. The floating interest rate is reset at regular intervals that are pre-defined by the lender.
It is important to remember that when the interest rate on your loan gets changed, it is usually the tenure of the loan that is adjusted. For example, if the interest rate charged on your loan is increased, then instead of increasing your monthly EMI amount, the creditor extends your loan tenure.
Main advantages of a floating interest rate home loan?
Taking a floating rate home loan is quite beneficial for many reasons, such as:
• Helps you generate savings
People usually take floating interest rate home loans when they expect the market interest rate to decrease in the future. If the market interest rate decreases, they get to enjoy a lower cost of procuring the loan.
• Usually cheaper compared to fixed interest rate home loan
The cost of procuring a fixed interest rate home loan is usually higher when compared to the cost of procuring a floating interest rate home loan. Even if the floating interest rate increases more than the fixed interest rate, the rise is only temporary and there are good chances of the floating interest rate decreasing thereafter.
• Ability to pre-pay loan without any penalty
Unlike fixed interest rate home loans, floating interest rate home loans do not charge you any pre-payment or foreclosure charges. Due to this, you can easily pre-pay your home loan without incurring any additional charges.
How do floating interest rates operate?
The floating interest rate is pegged to an internal or an external benchmark by the lender. The intervals at which the interest rate is reset are pe-defined by the lender in the sanction letter or in the loan agreement document.
1. Can you change your floating interest rate home loan to fixed interest rate home loan?
Yes. Many lenders allow you to change your floating interest rate home loan to fixed interest rate home loan. However, they might charge you a fee for the change.
2. Which is more beneficial, a fixed interest rate home loan or floating interest rate home loan?
The right interest rate type typically depends on the needs of the borrower. If you want to plan your finances in detail for the future or if you expect the market interest to up, choosing a fixed interest rate home loan might be a good option for you. Alternatively, if you wish to save money, pre-pay your loan, or expect the market interest rate to decrease, a floating interest rate home loan might be the right choice for you.
3. Does Bank of Baroda offer both fixed and floating interest rate for home loans?
No, Bank of Baroda only offers floating interest rate home loans. Currently, Bank of Baroda offers home loans starting at an attractive interest rate of 6.50%. Furthermore, home loans from Bank of Baroda have a repayment tenure of up to 30 years.
4. How to contact Bank of Baroda?
For assistance, you can contact a customer service representative on the toll-free numbers - 1800 5700. You can also give a missed call to the bank so they can get back to you for your queries on – 8467001111. You can also simply visit any Bank of Baroda branch that is the nearest to you.
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