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Will home loan interest rates come down?

The heat of increasing Home Loan Interest rates has been felt by most borrowers in the recent past. Moreover, the stringent monetary rules by the Reserve Bank of India left many borrowers with an augmented financial burden of as much as 25%.

The increase in interest rates by the RBI was part of its strategy to curb inflation and credit growth in the economy and inflation now stands below 5%. Recently, the authority increased the Cash Reserve Ratio (CRR) with a purpose to control inflation. Its decision of this move as opposed to increasing the benchmark interest rate is clearly indicative of unlokely hikes in interest rates at present.

Industry watchers believe interest rates are at their peak or nearing it. This, however, has confused new home buyers on whether to opt for fixed or floating loan rates.

Increased interest rates have largely affected floating rate borrowers. This is why experts always suggest it best to wait and watch for the interest rates to come down. However, if you are buying a house for your own use, it should not be affected by the interest rate cycle. It is always better to go with floating rates as they ensure that the borrower gets the advantage of interest rates coming down in near future.

Keep your eye on the trend followed by interest rates

Often, banks tend to increase the interest rates when the benchmark interest rates increase. However, such alacrity is not shown by them in decreasing rates- whether the benchmark comes down or not. You will find it futile to ponder over such behavior of banks as they have their own clauses in home loan agreement to support their point. You must be careful of the downward revision of interest rates on your home loan even if there is no change in your EMI.

Therefore, if the interest rates show a downward trend in the near future, it may be wise to discuss it with your relationship manager from the lending bank and verify that the downward revision in your interest cost has been done.

A Shorter Term or a Smaller EMI?

As interest rates are scaled up, borrowers are faced with the option of either lengthening the tenure of the loan or to meet the higher EMI. Likewise, the lowered interest rates would mean that borrowers can either shorten the term or bring down the EMI.

Experts, however, advise short term loans as against smaller EMI to ensure a lower interest payout. If the rates do increase further at a later date, borrowers always have a chance of increasing the tenure.

The Borrower’s Options

when the current retail boom started, interest rates were at its lowest. Home loans surged as a result, in combination with other factors. Most of the borrowers took up the loans when the interest rates were at its lowest, or had started climbing up.

Categories: Home Loans