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Floating, Variable, Adjustable Interest Rate on Home Loan

By Finserv MARKETS - Mar 20,2019
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Interest Rate on Home Loan

Buying the house of your dreams is definitely the biggest investment that an individual makes in his / her life. It is a long-term commitment and the entire process requires a lot of time and due diligence in terms of price, location, time to possession, documentation etc. Once you have gone through this process and finalized your house, the next logical step is to search for a bank or financial institution that offers home loan. Numerous financial and Non-Banking Financial Institutions (NBFCs) like Finserv MARKETS offer home loans at attractive interest rates and additional benefits. But, the question is, how would you make the right choice given that there are so many options available in the market?

From an interest rate perspective, there are home loan products available where the interest rate remains fixed for the entire duration of the loan. These are known as Fixed Interest Rate Loans. On the other hand, loans, where interest rates vary depending on the market rate, are known as floating or adjustable interest rate loans.

Read on to find out which is the best choice for you, fixed or floating home loan interest rate!

What Are Fixed Interest Rate Loans?

In case of a fixed home loan interest rate, the equated monthly instalments (EMIs) remain the same throughout the tenure of the loan. This allows you to plan the repayment of your home loan efficiently. This also implies that you stand to gain when interest rates rise due to various market conditions across macro or microeconomic factors. Fixed interest rates are usually 1 to 2.5% higher than floating home loan interest rate.

What Are Floating Interest Rate Loans?

There are two components to a floating home loan interest rate, namely base rate and a floating element. The floating rate changes with fluctuations in the base rate. Having said that, since the rate is never constant throughout the period of the loan, budgeting can sometimes become a difficult task.

However, the primary benefit of a floating home loan interest rate is that it is generally lower than fixed home loan interest rate. The major drawback is that a spike in interest rates will affect your budget. Floating interest rates are beneficial only if they exceed the fixed home loan interest rate by 1% (if rate differential is more than 1%, then floating rate loans are more expensive).

Here is how it works

Let us say you have taken a Bajaj Finserv home loan of Rs. 25 lakhs for 20 years. The fixed home loan interest rate is 10.5% and the floating home loan interest rate is 9.75%.

If you opt for the floating home loan interest rate, then your monthly EMI would amount to Rs. 23,713/-.

On the other hand, if you opt for a fixed home loan interest rate, then your monthly EMI would be Rs. 32, 292/-.

This would mean a huge difference in the monthly pay out of approximately Rs. 8,600/- which, in the long run, can make a significant difference to the total amount you pay back to the lender or financial institution.

What Should I Choose?

The final choice between a fixed home loan interest rate and an adjustable home loan interest rate would completely depend on your needs and financial planning objectives. If you maintain a budget and need fixed monthly EMI repayments, then a fixed home loan interest rate would be the best choice, however, you would be paying a higher rate compared to the floating option.

So, choose the right home loan upon thorough research to buy your dream home!

With Finserv MARKETS, availing a Bajaj Finserv Home Loan is easy, convenient and completely hassle-free. What’s more? The entire process is online and you can enjoy a host of other features and benefits right from the comfort of your home. So why wait? Buy the house of your dreams with Finserv MARKETS, today!

“Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we works towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.”

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522