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All About Floating Rate of Interest on Home Loan

Updated on November 17, 2024 , 4883 views

Aditi works as a professor of Arts and Literature at a well-known college in Delhi. While a majority of the girls grow up dreaming of a big fat wedding or an international trip across the globe, Aditi dreamt of owning her own home where she could design everything - right from the living room décor to the tiles in her bathroom.

Ever since she began working, she started saving money every month to fulfil her dream. Her family kept reminding her that she could get married and settle down and then purchase a home with her husband. However, Aditi felt differently. She wanted to experience the freedom of taking an individual decision.

When it came to financing, Aditi realised that her current savings would take many years to hit the budget to purchase a good apartment in Delhi. With a final sway of a resolution, she decides to opt for a Home Loan.

Aditi was well-aware of fixed interest rates for home loans, but needed clarity on the Floating Interest Rate, so that she can pick the best!

What is Floating Rate of Interest?

The Floating Rate of interest is when the interest rate is subject to change over the course of the loan opted for. These changes occur due to the difference in Market rates. This is also known as ‘adjustable rates’.

If you opt for a home with a floating rate of interest, remember that the loan is associated with a Bank’s benchmark rate. This rate moves according to the market interest rates. The interest rates are reset at specific intervals and could vary from calendar periods. Calendar period would mean 3 or 6 months.

However, this is unique for each customer and depend on the first date of the disbursement of the home loan.

This means that if Aditi opts for a home loan with a floating rate of interest, the interest rates are subject to change over a period due to changes in market rates. If the base rate is revised in an upward or downward direction depending on market conditions, the floating interest rate will be revised accordingly.

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Benefits of Floating Rate of Interest

1. Cheaper

Floating rate of interest on home loans is cheaper than the Fixed Rate of Interest. It is usually 1% to 2% lower than the fixed rate of interest and can continue to fall further depending on market conditions.

2. Advantage during Recession

The floating rate of interest will fall further than the current rate you opted for during a Recession. This is advantageous since you will be cashing out lesser money on EMIs every month.

3. Reduces the Total Interest Payable

With the floating rate of interest, you can expect a reduction in the cost of the loan due to the fluctuating nature of the financial market. The market rates are largely affected by investors’ emotions and decisions. This in turn also affects the interest rates on home loans.

4. No Penalty on Prepayment

With the floating rate of interest on your side, you don’t have to worry about paying a prepayment penalty. Prepayment penalty comes with a fixed rate of interest but a floating rate of interest you can save a lot of money by prepaying the loan.

5. Forecast of Market Conditions

You can opt for a floating rate of interest if you notice fluctuations in market conditions. A decreased interest rate saves a lot of money with every point.

Floating Rate of Interest on Home Loans 2024

Major banks in India offer attractive floating interest rates on home loans.

Mentioned below are interest rates from a few banks:

Bank	Interest Rate
State Bank of India	7.00% p.a. to 7.70% p.a.
ICICI Bank	7.45% p.a. to 8.05% p.a.
HDFC Bank	6.95% p.a. to 7.85% p.a
Bank of Baroda	7.00% p.a. onwards

Note: Interest rates are subject to change according to changes in market rates or bank’s discretion.

Save for a Home the SIP Way!

If you don’t wish to opt for a home loan, you can still save money and buy the house of your dreams with the Systematic Investment plan (SIP). SIP gives you the freedom to save money regularly with ease. You can plan your budget and savings with SIP and also expect great returns. Save monthly and buy your dream home with SIP today!

Fund	NAV	Net Assets (Cr)	Min SIP Investment	3 MO (%)	6 MO (%)	1 YR (%)	3 YR (%)	5 YR (%)	2023 (%)
SBI PSU Fund Growth	₹30.661 ↑ 0.02	₹4,471	500	-9.6	-3.4	49.8	33	23.5	54
Motilal Oswal Midcap 30 Fund Growth	₹104.202 ↑ 1.59	₹20,056	500	4.7	24.3	57.3	32	31.4	41.7
ICICI Prudential Infrastructure Fund Growth	₹182.93 ↑ 0.56	₹6,779	100	-3.5	2.5	41.3	31	29.8	44.6
Invesco India PSU Equity Fund Growth	₹59.97 ↑ 0.03	₹1,331	500	-10.7	-3.4	47.5	30.5	26.2	54.5
HDFC Infrastructure Fund Growth	₹45.495 ↑ 0.22	₹2,516	300	-6.4	2.1	34.9	30.3	24	55.4
LIC MF Infrastructure Fund Growth	₹49.1207 ↑ 0.72	₹786	1,000	-4.6	10	56.9	29.9	27.1	44.4
DSP BlackRock India T.I.G.E.R Fund Growth	₹316.473 ↑ 1.61	₹5,406	500	-5.7	1.5	46.3	29.2	28.2	49
Nippon India Power and Infra Fund Growth	₹337.889 ↑ 0.77	₹7,402	100	-8	-1.3	39.5	28.1	29	58
Franklin Build India Fund Growth	₹136.544 ↑ 0.69	₹2,825	500	-4.9	0.9	40.5	26.9	26.8	51.1
IDFC Infrastructure Fund Growth	₹50.145 ↑ 0.66	₹1,777	100	-10	1.5	48.6	26.6	29.2	50.3
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 19 Nov 24

Funds mentioned are considering best CAGR returns for over 3 years and fund having atleast have market history (Fund age) of 3 year and have minimum 500 Crore of asset under management.

Conclusion

Floating interest rates are popular among home buyers because of the advantage of market fluctuations and decreased total lower costs. Read all the required information related to floating rate of interest and terms and conditions carefully before applying.

Disclaimer:
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.