What is floating interest rate on home loan ?

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.