Will home loan interest rates come down?
To counter the worsening liquidity situation of banking institutions, the Reserve Bank of India (RBI) cut the key rates including cash reserve ratio (CRR), reverse repo rate and repo rate over the last few months. New borrowers can get as low as an eight percent rate with certain conditions and clauses. However, many banks are yet to pass on the benefits of reduced rates to their existing borrowers.
Hence, there is every possibility that your lender is contemplating reduction of the rate. The RBI plans to counter the economic slowdown and slump in growth by bringing down its key rates and hence making borrowing cheaper. Lower or negative inflation rate will prompt the RBI to lower the rates further. But how much and when will existing borrowers benefit depends on the lenders.
Is floating rate better now?
With the possibility of rates going down, floating rates may appear the best choice. But ask a borrower who availed a loan at seven percent floating rate some five years ago. Over the years, he had not benefited from any fall but seen the rate soar to as high as 13 percent. ‘Pure fixed’ loans are expensive. Hybrid loans are the best option in uncertain times.
Factors to consider before taking a loan
Find out if the lender has always passed on the benefits of lower rates to his existing customers. Do not go by lowest rate alone. Understand all clauses. Borrow as little as possible. Enquire about penalties and charges.
How do you arrive at the tenure?
Only if the net disposable income of the borrower is low, should he go for a longer tenure loan instead of a shorter tenure. Shorter the loan tenure, the interest amount paid to lender will be lesser. Short tenure loan means you can be debt-free faster.