As the Indian economy progresses towards development and a better lifestyle for everyone, the demand for basic necessities such as housing has been on the rise. The working class especially has generated this demand for affordable living spaces in the major metro cities and tier 1 /2 cities. As a result, housing loans are on the rise these days. People realise that it is better to go for a housing loan and buy a home, rather than living in rented apartments. The ownership factor becomes the differentiator.
The most important aspect of housing loan interest rates affecting the borrowers is the base rate that is followed by the Reserve Bank of India. Base rate is the minimum rate at which the banks of India are allowed to lend to its customers. If the base rate gets reduced, then home loans could become a lot cheaper for those planning to avail of one.
Home loans could be of various types.
- Fixed rate housing loan
- Floating rate housing loan
Generally housing loans are dispatched at floating rates, so as and when the interest rate decided by RBI changes, your interest rate on your housing loan would also fluctuate. This makes the entire payment process very volatile. Sometimes the monthly payments can be more, sometimes less. This entire situation would be depending on the liquidity strategies followed by the central bank.
What is the change in the housing loan sector?
But the scenario is changing now. Some of the top banks of India have started offering housing loans at fixed rates. The plus side of having a fixed rate loan is that the monthly payment on interest remains fixed, irrespective of the behaviour of the interest rates. Sometimes, it so happens that the interest rates fall, but the banks take a lot of time to pass that benefit on to its customers. A fixed arte housing loan would also help an individual/family in planning the budgetary allocations for the month. For example, if you know that your monthly income is Rs.50000 and your home loan interest payment is Rs.18000 per month, then you could plan your other expenses very well. This move from some of the major banks could have two reasons.
- Due to the prevailing high and volatile interest rates, the demand for housing loans has taken a hit. Rise in inflation and very slow growth in GDP has added to the woes of the bankers. So, a fixed rate would at least ease out the volatility problem of housing loan payments and if the fixed rate is comparatively lower, it would definitely bring a smile on the face of the borrowers.
- With the RBI’s new guidelines regarding base rate calculations, it might so happen that rates on housing loans go down considerably. So the banks would want to lock in as many customers as possible in fixed rate loans, so that if the rates go down, they can keep the differential benefit to themselves.
Overall today one can expect housing loan interest rates to see a favourable dip!