A loan against property is a secured loan that is availed by mortgaging your property or residence as collateral. The value of the loan is determined by the value of the property.
The floating interest rate is a type of interest rate which alternates with the changes in the financial market. It is also known as a variable interest rate as it is revised quarterly during the tenor period.
Mostly, a floating interest rate is more beneficial for a loan against property than a fixed interest rate.
Fixed vs. Floating Interest Rate:
As opposed to a floating interest rate, the fixed interest rate is pre-determined and does not change with the conditions of the financial market.
As an example, when a loan is taken at 6% in a fixed interest rate, the interest remains 6% over the duration of the debt repayment. When it comes to floating interest rates, that 6% would be subject to revision quarterly during the tenor period.
When to choose a Floating Interest Rate:
A floating interest rate is mostly availed for secured loans, such as a loan against property. It can ultimately lower the interest rate paid over a longer tenor period.
Financial institutions usually charge a higher rate for fixed interest rates, securing against the changes in the financial market conditions of the future.
Additional Read: Fixed vs Floating Interest Rate
Along with the risks of variable rates, there are chances of unexpected gains for the lender. However, in most cases, a floating interest rate is still lower and advantageous than a fixed interest rate.
Alisha Antil is your best financial helper for insurance. She has a vast experience in finance and insurance and provide to you the expert advise in insuring your property and health.
No comments:
Post a Comment