Compared to some 30 years back when only the wealthy bought houses, today anyone can buy a home. What would otherwise have entailed putting all the money up front for buying a house does not exist at all today. All this is due to the policy of Government distributing home loans through banks.
From buying a house for one’s own use, people today buy houses for investment purposes. Increase in money power is the reason for such a paradigm shift. The recent budget impact on affordable housing has also increased the demand for houses.
But, home loans have also proven to be risky at times; lending banks may refuse prospective buyers a chance to take up a loan based on many financial factors. However, this past month, the RBI has announced a 25 basis points cut in the repo rate, which could pave the way for banks to allow a more lenient approach to their home loan policies. Here’s how the repo rate cut could impact home purchase decisions.
What is the repo rate?
Short for Repurchase Rate, repo rate is interest rate the Reserve Bank of India charges on commercial banks whenever they borrow money, the concept is similar to how individuals are charged interest on the money they borrow from banks. Commercial banks normally increase or decrease their interest rates directly depending on the repo rate of the RBI. As of August, the repo rate is at its lowest number – 6.0%, which means it is the perfect time for prospective home buyers to think about asking for home loans without a worry. Understanding the implications of the slashed repo-rates is a good tip to help you apply for a home loan.
Reduced EMI tenures
The concept of EMIs was very well received by many consumers regardless of the product on sale. The option to pay in monthly installments eased the financial burden, especially on expensive products. Since buying a home on EMI still accounts for a large monthly sum, the reduced repo rate should bring some much-needed comfort for home buyers as lending banks are expected to slash the overall sum of monthly EMIs; this will also aid in reducing the duration of the EMI.
Reduced overall interest rates
If you’ve ever come across the phrase “interest rates are subject to market trends@, you’ll know that the current market trend is bustling with real estate purchase activity; this is because the repo rate has dropped and along with it, interest rates provided by banks have also dropped. The time is ripe to invest in real estate, with current average interest rates being between 9.6% and 9.85%.
Improved property sales
Selling property is a real estate developer’s biggest challenge, so the current scenario should benefit developers as much as it is benefitting buyers. If you are an ambitious home buyer looking to invest in more than one property, doing so now will be perfect due to the cheaper prices and lowered EMIs. Real estate projects should also be selling at quicker rates due to the rate cut, so you must act swiftly to grab your dream home.
Affordable housing takes the driver’s seat
One housing segment that is making significant ground in the sector is the affordable housing bracket. The fact that this segment is targeted to lower income groups and is also a government driven initiative means that it is sure to perform well in the market. Add the benefits of the rate cut to the already existing benefits of buying an affordable home, and you get the sweetest real estate deal ever.
Chance to apply for MCLR loan policy
The RBI had introduced a new benchmark lending rate, named Marginal Cost of Funds based Lending Rate (MCLR) on which banks would operate home loans. The lending rate applies to floating home loans and differs heavily from the old lending policy of approving loans on the base rate. MCLR functions in relation to the repo rate rather than the standard base rate, so the chance of a further reduction of interest is present for those applying for a home loan. Existing borrowers also have the option to switch their loan system from base rate to MCLR.
The best time to invest in a home is undoubtedly now! The best home to invest in is none other than properties from Lancor– a reputed developer who is known for high quality construction of both luxury and affordable home projects.