What is Floating or Variable Rate Loan?
• Interest rate is not fixed and can be varied by the bank. The rate is linked to a reference rate (generally, prime lending rate) declared by the bank from time to time. • If the PLR goes up, interest rate on housing loan and monthly repayment will go up and vice versa. • The bank fixes a spread between PLR and floating rate while sanctioning a loan. The spread remains constant during the tenure of the loan. The spread can be changed with mutual consent of borrower and the bank. • The loan document specifies the reset period for changing interest rate, i.e. at the beginning of the following month/ quarter/ half-year immediately after the PLR is revised. Banks also permit the borrower to change from fixed interest rate loan to floating interest rate loan and vice versa subject to certain conditions. Ascertain these details before availing of housing loan from a bank. 7. How and when banks should communicate changes to terms and conditions? • In terms of para 3.5 of Code of Banks Commit
