Why Do Loan Against Property Interest Rate Change Frequently

A loan against property is when one pledges his/her commercial or residential property as collateral for the loan amount. About 60% to 70% of the property’s value is given to the customer as the loan amount. 

In a loan against property, the customer can choose between a fixed interest rate and floating interest rate. A fixed interest rate stays the same throughout the tenure of the loan, whereas a floating interest rate changes throughout the tenure of the loan. So, if your interest rate is changing frequently, it implies that you might have chosen the floating rate of interest for your loan. 

What is a floating interest rate?

A floating rate of interest, also known as a variable rate of interest, changes either by increasing or decreasing as per the market conditions. The base rate will have a floating element added to it and these rates change frequently. An advantage of the floating rate of interest is that it is usually cheaper than a fixed interest rate, but it can be hard to plan one’s budget based on it as it changes frequently and can increase if the market conditions are not favourable. 

If you do not want an interest rate that changes frequently, you can always opt for a fixed interest rate for your loan against property. 

What is a fixed interest rate?

A fixed rate of interest is as the name suggests, permanent throughout the tenure of the loan despite market conditions. So, even though the market faces frequent fluctuations, the interest rate on the loan remains fixed. This is beneficial to help plan expenses as the exact amount that is being charged as interest is known to the customer. But, this can work out more expensive than a floating rate of interest as sometimes the market interest rates dip and can be 1 to 2.5% lower than the fixed rate. 

So, based on one’s personal requirements and needs, one can either opt for a fixed rate of interest or a floating rate of interest. 

To apply for a loan against property, click here.