If you opt for a loan, which has a floating interest rate charge on it then, with the rise in the market rate, the floating rate is bound to rise. Banks are affected by market rates because, higher the market rate, higher will be the cost at which banks acquire funds. But if the interest rate falls, your floating rate on your loan too falls.
But in this current, inflation ridden economy, there are extremely slim possibilities for the latter to happen. So in such cases, going for a loan with floating interest rate can be quite expensive.
For example, if you have taken a personal loan for Rs 1 Lakh for a 5 year term at 8% p.a. and now the interest rate jumps to 8.25% p.a. then your EMI payments will increase by Rs 15.
But there have been new confirmations banks and financial institutions are not going to raise the interest rate. However if the central bank constantly increases the rates, and make the money availability for the economy short, then the rate are likely to jump.
But if in case, you have been a victim to such ferocious rises, which can cost you a lot, try to repay a lump sum of your principle after discussing with the bank, so that your rest of your debt can be paid smoothly and quickly.
Such home loan partial prepayment also fetches the borrower a tax break under Section 80C, where he can invest up to Rs 1 lakh in approved avenues. Before you decide to prepay, do factor in the pre-payment charges payable to the bank, if any.