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One of the biggest determinants of how expensive your Loan Against Property repayment can get is your interest rate, and that largely depends on the type of interest rate you choose – fixed or floating. While both look inviting due to their distinct benefits, you must choose the one that matches your needs. Here, we discuss the merits and shortcomings of opting for a Loan Against Property on a floating interest rate and if it is the correct choice for a financial commitment of this size.

When you opt for a floating interest rate on your Loan Against Property, you are linking your interest rate to the market. This allows a range of movement in the interest you stand to pay, which could increase or decrease – passing both the benefit and the surge to you.

In such cases, your interest rate has two components:

  1. The Benchmark Rate: Our internal benchmark rate is the BHFL FRR. When this rate changes from time to time, it directly impacts your Loan Against Property interest rate.

  2. The Spread: This is the additional margin that a lender adds to the benchmark rate to determine your final interest rate. While the benchmark rate is common across the lender within a loan category, the spread is determined on the basis of the individual’s profile.

What this effectively means is that any movement in the benchmark rate has an impact on the floating interest rate you pay on your loan, which translates to either more savings or more interest payable – depending on the current market conditions.

Before you decide to avail of a Loan Against Property, you must understand how your interest rate could change over the course of the repayment tenor and how it may impact you. Below are the pros and cons of opting for a floating interest rate.

Benefits of a Floating Interest Rate on a Loan Against Property

  • The floating interest rate is typically lower than its fixed counterpart, by at least 1-2% 
  • The floating interest rate is subject to change basis market conditions, which enables you to benefit from rate cuts in the event of market scenarios 
  • Even in the advent of an increase in the floating interest rate, it may not necessarily remain the same throughout the repayment tenor 
  • Lenders do not charge any foreclosure or part-prepayment penalty if you are an individual opting for a floating interest rate 

Drawbacks of a Floating Interest Rate on a Loan Against Property

  • The floating interest rate is linked to market conditions, and because the market is prone to fluctuations, it could mean a scenario where you end up paying bigger EMIs – upsetting your loan repayment plans
  • It makes repayment planning difficult as it is hard to tell when your floating interest rate could dip or rise

Borrowers who are sure of favourable market conditions in the next turn, or are willing to bear the brunt of a hike just as much as they’d like to enjoy a dip in their interest rate should opt for a floating interest rate Loan Against Property. With the additional incentive of zero charges on loan foreclosure or prepayment for individuals, the floating interest rate becomes the ideal choice.

Note that Bajaj Housing Finance does not offer fixed interest rate loans at present. Consider borrowing a Loan Against Property with a floating interest rate from us for competitive pricing and sizeable sanctions, to address all expenses you may have.

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