Also known as variable or adjustable rate, a floating interest rate is a type of debt including credit, loan, bond which does not have a fixed interest rate.
A fixed interest rate loan is a loan where the interest rate doesn't fluctuate. This allows the borrower to accurately predict their future payments. Variable rate loans, by contrast, are anchored to the prevailing discount rate.
You can apply for home loan by approaching a housing finance company with a formal application. In addition to the application, you're required to submit your personal details to the bank to know about your loan eligibility
Banks have set some parameters to determine the borrowing capacity of a candidate. The amount of loan you get depends on your age, salary structure, liabilities and cash flow and expenses.
Age: For granting loans, banks prefer to allot to an individual who is not more than 58 years of age. Even the tenure of repayment of home loan is decided on the basis of your age.
Salary: When it comes to submitting your salary details, banks do not consider perks, bonuses, allowances. If all these elements make up for the larger part of your salary, then it is likely that your home loan eligibility may go down.
Liabilities: A borrower's liabilities should not exceed 55 – 60% of his monthly income.
Cash Flow and Expenses: Around 40% of your monthly income goes towards EMI payment. For example, if your monthly income is Rs. 1 lakh, you will be have to pay around Rs. 40,000. Prior to going forward with a bank for a home loan, it is recommended to check with a few banks and pick one which is ready provide you the lowest interest rate.
Yes, banks do charge processing fees which usually varies from 0.25% to 0.50%. The processing fees is levied for the maintenance of your loan and once paid it is non-refundable.
For home loan, tax benefit is available for the interest and principal component. As per the current budget, you are eligible for tax deduction on interest paid at around Rs. 1,50,000.
In reducing balance you reduce the amount of principal payment already paid by you from the initial loan amount. You pay interest only on principal unpaid till that point of time and not the entire loan amount.