Are rising interest rates affecting your home buying decision?

If the increase in housing loan rates is making you vacillate between buying or deferring your house purchase, this article is for you.

After demonetisation was announced in November 2016, banks across the country were left flushed with funds as people rushed to deposit their old Rs 500 and Rs 1,000 notes to get new denomination notes. Prominent banks responded by dropping lending rates on housing loans and fixed deposits – this was done because they did not need to borrow from the RBI for a while. From highs of 11% in some cases, home loan rates dropped up to 8.3% for some banks and financial institutions.

The year 2017 was the best year to borrow a home loan since interest rates had dropped perceptibly across housing finance companies and banks in India. The best home loans are those that offer a low rate of interest, and most first-time buyers availed of the rate reduction to finally make a housing loan application for their dream house.

How higher interest rate affects your housing loan

Cut to the early months of year 2018, when the first glimmers of housing loan rate increases began to be seen. With the RBI increasing lending rates, banks and financial institutions responded by doing the same thing as well. This year, home loan rates have already touched 9% in some cases – the rates and EMIs are automatically adjusted in the case of floating rate of interest.

Thus, if you wish to buy a house, you must make do with the recalibrated interest rates. This means higher EMIs than what you would get in the previous year, and a more expensive loan overall. You might defer your home purchase decision for a while, hoping for a rate correction in the coming months.

Buy now, not later…

  • Waiting for a rate reduction is a risky game – rates might not drop at all, and the more you wait, the more expensive the loan will become.
  • In any case, even as you wait for the best home loan product, property prices keep appreciating all the time. So even if you find a good housing loan, the property will be more expensive a year later than it is today!
  • Rental prices also increase by about 10% every year. When you defer a house purchase and continue living in a rental accommodation, you end up paying more rent annually and this is money that never comes back to you. But if you were to pay a loan instalment, you would work towards securing full ownership of your own house.

You can further safeguard your housing loan by taking home loan insurance. This helps the surviving spouse or co-borrower to repay the rest of the housing loan in your absence.

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