Falling Home Loan Rates- Opportunity For First Home Buyers

Interest rates on home loans have been decreasing ever since the onset of Covid-19 and consecutive lockdowns. To revive demand and economic activity the RBI has provided deeper cuts in the policy rates. In its last monetary policy meeting, the central bank reduced the repo and reverse rates by 40 basis points (bps) each to 4% and 3.35%, respectively.

So what do falling home loan rates have to do with home buying?

Buying a new home is the quintessential Indian dream. And if you have been contemplating buying a home from last few months/years this is the best time to take the plunge. New customers can now get home loans at much lower rates in fact the sub 7% is the lowest interest rate on floating home loan in the last 15 years.

Why should I make any investment in properties now?

 One question crossing your mind would be amidst Covid-19 pandemic, uncertainty hovering around, demand slump slow economic activity, will it be a sane decision to block my money into a house?  Let us run through a few pointers to analyze why this is a good opportunity to make property investment.

·      Lower Lending rates

From 1 July, State Bank of India (SBI) is offering home loans starting at 6.95% per annum. Other public sector banks (PSBs), including Union Bank of India, Bank of India, Central Bank of India and Bank of Baroda, have been offering home loans from 6.70% or 6.85% onwards. The actual rates vary depending on the loan amount and profile of the borrower. For salaried borrowers with SBI, the interest rate is 7% for loans up to 30 lac. For loans between 30 lac and 75 lac, it’s 7.25% and 7.35% for loans above 75 lac.

These rates will differ for Private Banks. For salaried borrowers, home loans from ICICI Bank starts at 7.45% (for up to 35 lac) and go up to 8.45% (for loans above 75 lac), according to its website. Axis Bank’s home loan rates start at 7.75% and Kotak Mahindra Bank offers it from 7.35% onwards.

Suggested Read: Checklist of Activities Before Applying for a Home Loan

• Real Estate is The Best Investment Bet

With a volatile stock market, exorbitant Gold rates, low rates in FDs, real estate seems to be the only safe haven for individuals. Not only are the lending rates low, developers are offering attractive payment options, various scheme and freebies to promote their projects. 

• High inventory could lead to better deals from builders

Several developers are sitting on large housing inventories, (ready-to-move-in houses) due to subdued demand and slow economic activity. This makes a great case for aspiring first home buyers to negotiate with developers crack best deals & offers. You could even get good discounts with the developer considering lesser demand.  So if you are wary of investing in an under-construction project, you may pick a ready to move in home and save on your rentals too. In case you are not buying a house for end-use, you may even rent it out and make a few bucks with rental income. It is an opportune time for property investment.

• Cheaper EMIs

Cheaper loan rates from banks can help borrowers to either reduce the equated monthly instalments (EMIs) or get better eligibility.

This means if earlier you could take a loan for Rs an X amount, now with lower lending rate you could take X+ amount (a few lacs up). So whatever money you may have to block for interiors and other stuff it would literally be free now. So a person earning 45,000 would be eligible for a loan of 25.23 lac at an interest rate of 7.45%. If the interest rate drops by 50 bps, the person’s eligibility could increase by almost 1 lac, provided all other factor remain the same.

• RBI Intervention:

The Reserve Bank of India (RBI) has directed all scheduled commercial banks (except regional rural banks), local area banks and small finance banks to link interest rates of all retail loans, including home loans, offered by them, to an external benchmark with effect from October 1, 2019.
Most commercial banks have opted for the RBI’s repo rate as the external benchmark to which all floating rate loans are linked.

– Why RBI took this decision?
Previously, whenever RBI cut the repo rate, banks did not pass on the benefits to customers swiftly. On the other hand, when RBI hiked the repo rate, banks swiftly raised interest rates on loans. RBI took the decision for greater transparency and faster transmission of the policy rate changes.

Also Check: Different Types of Home Loans in India

·      Fixed/Floating Tenure

– Fixed Interest Rate Home Loan is where the interest rate is fixed for the entire tenure of the loan even if there are significant changes in the economic scenario. Interest rate stays the same through the tenure, which brings a level of certainty for home buyers. So for a fixed monthly repayment schedule, it is the best option.

– Floating Interest Rate Home Loan is where in the rate of interest varies according to the market conditions. This means that interest can either go up or down depending on how the market is performing. It is comparatively cheaper than fixed interest home loans rates, as long as the market remains stable. But there are always interest fluctuations. However borrowers can save a considerable sum on interest paid.

 Other Benefits:

Lower lending rates mean small loan size which means lesser debt burden. You could be able to repay your loan way before the term.

Home Loans bring with its additional tax advantages. Saving money on tax is like making unknowing hidden savings.

With attractive loan offers from banks, make the best of the situation even in these gloomy times. You may be a proud home owner soon, take the plunge!