Should I go for a home loan or wait for rates to come down?





By Rishi Mehra

The best time for taking a home loan is when you have already shortlisted a house you want to buy. Waiting for interest rates to come down is an exercise in futility because your home loan is for a long period and rates are bound to fluctuate. A smart borrower will troll the market for the best deal.

There are many home loan plans available in the market. Different banks offer various kinds of home loan options. Currently, all the banks across India are offering home loans at the rate of 10.15% to 10.5% per annum in all range of loan amounts.

People equipped with relevant information about home loans, banks, interest options and EMIs are the ones to make best choices while selecting a loan. Let’s look at a broad guideline for a buyer going for home loan:

What is the best time to take a home loan?

Predicting the rise or fall of interest rate is difficult, therefore, the time to take home loan should instead depend on nature of the loan. As a customer, one needs to understand that there are two types of loans- fixed and floating. However, majority of the people opt for floating rates in case of home loans. The reason being, a home loan is generally taken for a period of 15-20 years. Since, timing the market for 20 years to get the best rate is impossible, it is advisable to go for floating rates as they ensure that a borrower gets the advantage of interest rates coming down in near future. Also, rates in next 20 years will change and thus boarding rate at floating rates doesn’t matter.

So what does matter?

Taking loans at the lowest interest rate is what matters at the end. A buyer needs to be extra cautious while selecting the type of loan and the bank. He has to be updated with the rise and fall of the interest rates, so that he is not charged at higher rates even when there is a cut in the interest rates. Primarily, you should have clarity on two basic things: a) Is your Bank or Housing Finance Company giving you best deal in terms of rates currently? b) Do you have the options to move to another lender if your existing Bank is charging higher?

In case both the terms are satisfactory, one should go for lowest rate bank and whenever another bank is giving 0.5% lesser rate, should shift to that bank. However, do not forget to check the processing charges while shifting banks. Likewise, you should try to fetch loans from the lowest rate bank and should be ready to shift your Home loan, as there are no prepayment charges.

What is fixed rate schemes?

The interest rates have sharply moved from 7.75% to 14% in last 15-20 years. As the name suggests, fixed interest rate home loans allow the repayment in fixed equal monthly installments over the entire period of the loan. The interest rate in such a case is fixed and doesn't change with market fluctuations. As they offer a fixed interest rate, they prove to be beneficial in cases where market pressures push the interest rates to high levels. In such a scenario, the borrower pays a fixed Equated Monthly Installment (EMI). Therefore, giving a sense of certainty and security.

However, the major drawback in fixed loan is that it is usually 1%-2.5% more than the floating rate home loan. Also, fixed loans becomes costly in times when there is a cut in the interest rates in the market. Therefore, fixed rates are advisable only in situation where the economic future hints at rise in interest rates.

How to manage your home loan amount?

Taking a home loan not only saves tax but also creates asset. While applying for this loan you should ensure that, the EMI is less than 30% of your total income. This will help you in long run of managing debt life. Buying an expensive house/property that takes away 50-60% of the income in EMI is not desirable and should be avoided. Always go for a property within your budget. Home loan rates can’t be timed but least rate from all options is doable. Get the loan that fits your budget and whenever fixed rates loans are available for more than 10 years for 9%, opt them.

Home loan is a long-term commitment and options should ideally be vetted, explored and then zeroed down on. If you follow these advice then are sure to get the best deal in home buying.

The writer is Founder of Deal4loans.com

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