Abstract: In this paper we will discuss about the floating rate home loans. As the name suggests, the rate keeps changing with the current interest rates available in the market. We will also analyze the advantages of floating rate home loans over the fixed rate home loans.
Floating Home Loan Rate is closely associated with the market interest rate. Therefore, floating rate loans keep changing periodically, whereas, the fixed loan rates will not change throughout the entire loan period.
• Advantages Over Fixed Rate Home Loan:
Sometimes floating rate home loans are more advantageous than the fixed ones. The reasons for this are:
• Floating home loan can be available at a low cost compared to the fixed home loan.
• Even, if the floating home loan rate increases, the reasons behind that will be discussed later, and then also it won't go beyond the fixed loan rate.
• If the interest rate is increased suddenly then, it will not be effective for the entire loan period. On the contrary, when the rate decreases, the advantages will be there for the taking, which is not possible in case of fixed loan rate.
• Reason Behind the Rise in Floating Home Loan Rate:
There are many reasons for which the floating home loan rates rise. These are listed below:
• The floating home loan rates will rise if the country's cost of funds increase.
• In many underdeveloped or developing countries the organized institutions earn more profit by exploiting the retail customers. Therefore, the floating home lone rate increases.
• The banks every now and then change the loan rates. So the old customers have to pay high rates continually.