Interest rates are sliding while banks are coming up with attractive Home Loan schemes. So, this might be the right time to go for a Home Loan.
Manish and his wife, Parul, working with a media company in Bangalore have been thinking about buying their dream home. High real estate prices and interest rates have always made their decision to take a Home Loan a difficult one. With new projects coming up in a few desirable locations, they are keen to take the plunge but are in a dilemma as to whether this would be the right time.
Manish and Parul are not the only ones, and almost every Home Loan applicant wants to make sure that they get the timing right. If you have friends in the banking and financial services sector, they would advise you that this is a good time to consider a Home Loan, especially after the recent fall in interest rates, along with controlled inflation. And they may be right! Here’s why:
Active Home Loan schemes
With an increase in Home Loan applicants, various banks and Non-Banking Financial Companies (NBFCs) are getting active. The objective is to make sure that they get the maximum number of clients. This means that new borrowers are in for a treat as there are plenty of institutions which have come up with Home Loan schemes for young borrowers whose income is low.
Additional Reading: 4 Popular Home Loan Schemes For You
In a bid to encourage housing for all, PNB Housing Finance has got the Unnati Home Loan scheme. This will be available to both salaried and self-employed people who earn a minimum of Rs.10,000 per month. The maximum amount is Rs.25 lakh. The scheme is offered at an interest rate of 8.90%.
Similarly, the State Bank of India (SBI) launched a Home Loan scheme aimed at young professionals. Named SBI FlexiPay, this scheme provides a holiday on principal payments for a period of 3-5 years. Loan EMIs will be stepped up after this period. This targets young earners who anticipate career growth and higher salaries, a few years down the line.
Financial experts believe that the long Home Loan tenure will result in a cyclic period for interest rate highs and lows, and such discounted schemes would push borrowers to make quick decisions. This is especially true if they have been waiting for the right opportunity to take up a Home Loan.
Encouraging more people to opt for Home Loans, the Finance Minister increased the rebate on your self-occupied property from Rs 1, 50,000 to Rs 2, 00,000 when Budget 2014 was announced. In the recent Budget, more such incentives were added.
If you are a new home buyer, you can now claim a deduction of Rs.1, 50,000 under Section 80EEA, as announced this year. This is for the interest repaid and will be over and above the Rs. 2 lakhs under Section 24. The tax benefit will be for loans taken between 1 April 2019 and 31 March 2020. The house should be less than Rs. 45 lakhs and the carpet area of the house should not exceed 60 sq.m. (645 sq ft) in metropolitan cities including Delhi NCR & carpet area not to exceed 90 sq.m. (968 sq ft) in other cities.
If tax benefits and innovative home schemes are not enough, here is more good news for new Home Loan seekers. Many institutions offer higher Loan To Value (LTV) for Home Loans. LTV is the percentage of the property value that banks can lend to borrowers. RBI has allowed banks to offer LTV of 90% on Home Loans up to Rs.30 lakh. Earlier, only loans up to Rs.20 lakh could get this benefit. Essentially, you need to pay only 10% of the property value as down-payment while the lenders fund the rest.
Additional Reading: How To Take A Home Loan Under PMAY (Pradhan Mantri Awas Yojana)
A point to note is that while a higher LTV reduces the margin money to be raised by the borrower, it increases the quantum of the Home Loan, leading to a higher total interest cost for the loan. Also, bear in mind that lenders may not fund stamp duty and registration costs and borrowers must keep some part of their funds for all these charges (which are not a part of the down payment).
More interest rate cuts
The repo rate has gone down from 6.5% to 5.75% and further rate cuts cannot be ruled out. Finance experts are of the opinion that a rate revision is not expected until the end of this year as RBI is continuing to monitor inflation closely. However, since floating-rate loans are becoming attractive, banks might come out with lucrative fixed-rate loans as interest rates in the country keep coming down.
Considering all the above factors, it is a good time to invest in a Home Loan now.
Home Loan Interest Rates:
|Bank||Interest Rate||Tentative EMI per lakh|
|PNB Housing Finance||8.9%||Rs.797 for 30 years|
|HDFC Bank||8.55%||Rs.772 for 30 years|
|LIC Housing Finance||8.4%||Rs.762 for 30 years|
|ICICI Bank||9.05%||Rs.808 for 30 years|
|SBI||8.40%||Rs.762 for 30 years|
YOU MAY ALSO WANT TO: Find out how much interest change affects your EMI – Home Loan EMI Calculator