Floating Rate

Full form: Floating Interest Rate

Loans & Credit

A floating interest rate changes periodically based on RBI's repo rate. All new home loans post October 2019 are RLLR-linked, meaning rate changes pass to borrowers within 90 days of RBI policy change.

In detail

Your rate = RLLR + Bank spread (spread fixed at origination). Fixed rate loans are 1-2% higher and available only for short tenures -- not practical for 20-year home loans. Floating rate benefits from rate cuts; rises hurt.

Formula

Your rate = Repo rate + Bank margin + Credit spread

Real-life example

🇮🇳 India example

Rahul takes loan April 2022 at 7% (repo 4%). By Feb 2023, repo 6.5%, his rate 9.5%. EMI on Rs 40L jumped from Rs 31,072 to Rs 35,931 -- Rs 4,859/month extra.

Frequently asked questions

Fixed or floating rate home loan? ▼

Floating almost always better in India. Fixed rate is 1-2% higher and limited to short tenure. Over 20-year tenure, floating results in lower total interest historically.