Should you get a home loan or wait for rate fall?

Waiting for home loan rates to decline may result in you missing out on buying your dream home.

Buying your first home is a process fraught with a bit of confusion. You assess your finances and realise that you probably don’t have the wherewithal to make an outright purchase on your dream home. This means that you must take a home loan to buy the house.

But you are worried about taking a home loan, because you feel that interest rates are too high at the moment. You decide to wait till the rates decline, so that you can apply for the home loan and purchase your first home. At a later date, you can also opt for a home loan balance transfer to get a reduced rate of interest.

Are rates liable to fall?

On the contrary, home loan interest rates have risen in the months marking the start of year 2018. Home loan rates fell by at least one percentage point after the demonetisation exercise of November 2016. Leading banks and NBFCs offered home loan rates as low as 8%, which had climbed to higher than 10% across banks.

However, after over a year of stability, home loan rates began to creep upward from the initial months of year 2018. Those who have taken home loans on floating rates of interest are now liable to repay their borrowings at an increased rate – this means that the EMI increases, and so does the overall repayment amount payable.

There are no indications of rate decline later this year. So instead of waiting for rates to fall so that you may purchase a home, it is better to apply for a home loan right away.

If you already have a home loan

If you are already servicing a home loan, then you are already aware of the loan interest rates rising. Your bank or financial lending institution may have already adjusted the EMIs accordingly.

At this juncture, it is possible to reduce the EMI amount in two ways:

  • See if you can extend the loan tenure. For example, if you have taken the loan for 15 years, you may extend it up to 20 years. Extending the loan tenure increases the EMI ‘spread’, i.e. the number of EMIs left to repay the loan in entirety. However, there is a corresponding drop in the EMI amount as well.
  • Get a home loan balance transfer to another bank or lending institution offering a lower rate of interest. Leading banks like IDFC Bank are currently offering an easy home loan balance transfer facility, as well as competitive interest rates. Use IDFC Bank’s home loan balance transfer calculator to find out how much difference the transfer process will make to the overall loan proposition.

Thus, waiting for the interest rates to fall will hardly serve any purpose. It is wiser to go ahead with the house purchase, taking care to sign up for a loan that has a lower rate of interest.

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