Home Loan Repo Rate: Buying a house is everyone’s dream. People work very hard for this. According to Bankbazaar’s ‘Bankbazaar Aspiration Index’ survey, owning a house is one of the top 3 desires of Indians. But due to rising property prices and rising interest rates, it has become very difficult for people to fulfill this dream.
But in today’s time, with the help of home loan, many people are able to fulfill their dream of having a home of their choice. Many factors can affect your decision to take a home loan. When should you take a home loan and what is the right time for it. And let us tell you how home loan is affected by repo rate.
Home Loan and Repo Rate
Repo rate is the rate at which the central bank gives funds to other commercial banks. On the basis of this repo rate, these banks provide loans to people. Which also includes home loans. Currently the repo rate is 6.5% which has neither decreased nor increased in the last 6 times. There is uncertainty about whether it will decrease in the future. In such a situation, should you take a home loan now or should you wait for the repo rate to decrease? Let us try to tell you through two figures.
Loan at 9% interest rate
If you are thinking of taking a home loan of Rs 50 lakh for 20 years at an interest rate of 9%. In such a situation, your monthly installment i.e. EMI will be around Rs 44,986. So in 20 years, you will have to pay Rs 57,96,775 as interest.
If the interest rate comes to 8.5% then
But instead of taking a loan at 9% interest rate, you wait a little. And RBI cuts the repo rate. So the interest rates of home loan come down to 8.5%. And in this case, if you take a loan of Rs 50 lakh for 20 years. Then your EMI i.e. monthly installment comes down to about Rs 43,391. The interest you have to pay on this will be Rs 54,13,978.
Total savings
If you take a loan at a lower interest rate of 8.5% as against the interest rate of 9%, then you will save Rs 1595 on the monthly installment i.e. EMI. Along with this, you will be able to save Rs 3,82,797 as interest.
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Make a decision based on these facts
There will be loss due to increase in property price – Nothing can be said about when RBI will reduce the repo rate. Because at present the Reserve Bank is focusing on bringing the inflation rate to a normal level. If you postpone the decision of buying your house due to the reduction in repo rate, then during this time the property rates may increase. Which is harmful for you. Because the benefit that you were going to get by taking a loan at a low interest rate, you will not get that benefit due to the increase in property prices.
Check your financial condition – According to BankBazaar’s AGM Communications Ravi Kumar Diwakar, if your financial condition is good at present, you have decent savings and a good income source, then you can take a home loan at the current rate. But when you look at your financial condition, keep in mind that you will have to make some down payment on taking the loan. This will give you the property at the current rate and you can earn profit by selling it at an increased price in the future.
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Compare your rent and future savings- If you live on rent, then you should see how long you can wait for the interest rate to come down. And how much rent will you pay during that time. Will the rent paid during this time give you enough profit when the interest rate comes down in the future. The amount of rent you will pay during this time, if you think that if you wait, you will end up paying more rent and you will not get that much profit. Then it is better that you can buy property without waiting.
Compare Tax Benefits – On taking a home loan, you get a lot of tax benefits under Section 80C and 24(b) of the Income Tax Act. In this, you get tax exemption. And despite the higher interest rate, you get benefit. If you take a loan at a lower interest rate, then you get overall benefit, but if you wait for the interest rate to come down.
So the property you are about to buy can increase in value. For example, if a property is worth Rs 1 crore today, then in a few years it will be worth Rs 1 crore 30 lakh. The benefit that you would have got by taking a loan at a low interest rate will not be available. That is why first check all these aspects thoroughly and only then proceed with the process for a home loan.
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