The variable home loan rates is often also called a floating or adjustable rate. It is one whose interest rate is not fixed for the entire tenure, but instead fluctuates in response to changes in a benchmark rate or index.
A variable rate “floats” because it is tied to a reference rate (such as an internal benchmark like MCLR, base rate, or cost of funds) plus a lender‐determined margin (spread).
Under this structure, when the benchmark rate moves (up or down), the interest you pay on the outstanding home loan principal is adjusted accordingly at defined intervals (e.g., quarterly or half‐yearly).
If the benchmark declines, your rate (and monthly payments) can fall.
If the benchmark rises, your cost will go up.
One of the main attractions of a variable rate is that it typically begins lower than a comparable fixed rate, giving borrowers the potential to benefit if overall interest rates come down. However, that also introduces risk. You may face higher interest costs or EMI increases when rates rise.
This was all about what is variable home loan rates.
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It is one of the hardest decisions to purchase a house when you are availing of home loans. And most of us do not have the fortune to buy homes without taking a home loan. While availing home loan you will come across two types of interest rates: one is the fixed rate and the other is variable interest rate. Now, what is
variable interest rate? I will share the definition with you.
Avoid hefty paperworks and get home loans at the lowest interest rate.What is variable rate loan?
The
variable rate home loan is also popularly known as the floating rate. It is also known as an ‘adjustable-rate home loan’. In variable rate the interest rate changes at a particular time during the home loan tenure. This can happen quarterly, half-yearly, or in one financial year. Alternatively, the interest can be revised after one year of the loan anniversary. During the review period, if the market rate changes, then your loan rates would also reset again.
If the rate resets, the tenure of the loan also gets readjusted due to the change in interest rate. So, if the rate increases the tenure of the loan would also be extended and vice-versa. This is what is variable home loan rates.
This doesn't happen with a fixed rate. If you avail of a fixed interest rate, the interest rate would remain the same along with the home loan tenure. You cannot change the fixed-rate under any circumstances.
I hope you now understand the meaning of variable interest rate.
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Kakali
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2022-06-20T11:14:44+00:00 2022-06-21T16:38:16+00:00Comment
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