Article

Floating Rate
January 19 , 2013

Interest rates in the market, as we are aware, keep changing from time to time. Indeed, given that a home loan is often over 10 years in duration, the interest rates could fluctuate significantly in the interim.

In a floating rate loan, the interest that you are charged varies from year to year depending on the prevailing rate in the market. In some loans, this changes your EMI (an increase in interest rate increases your EMI). In other cases, depending on your loan structure, your EMI would remain same; while the tenure would change (an increase in interest rate lengthens the duration for which you have to pay EMI). In either case, you are paying a variable interest rate in a floating rate loan.

Deposits have so far had a fixed rate of interest. However, even that is changing now with Banks starting to offer floating rates of interest.

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