Taking A Home Loan, Or Waiting A Bit More

Home Loan

Many people are hoping for a further revision in home loan interest rates. But you might want to buy a house right away. What should you do – wait, or buy?

Buying a house in today’s times is nothing short of a major achievement. Even as house prices continue to move upward, realty is simply unaffordable in most parts of the country. Thus, many buyers have no recourse but to take a home loan to buy the house. But even this decision is dependent on the interest rates being offered.

Why interest rates matter

From a buyer’s perspective, the most important component of the home loan is its interest rate. The higher the home loan interest, the higher the EMI and the more money you repay the lending institution. Conversely, the lower the home loan interest, the lower is the EMI and the lower the total repayment made to the lender.

Any home buyer looks for a lower rate of interest when taking a home loan. Post-demonetisation, interest rates have reduced from a high 10% to 11% to 8.5% from some lenders, and about 8.6% to 9% across others. When taking a home loan, buyers often choose floating rate of interest over a fixed rate. The floating rate of interest allows for an adjustment when the rates are reduced in the future. However, some housing finance companies allow customers to switch from fixed to floating rate of interest to avail of lower rates.

Predicting the markets for the future…

…is often a futile exercise. The home loan is often taken for a period spanning 15 to 20 years. Even the most experienced financial pundits cannot predict rate trends over such a long period of time. Meanwhile, rate corrections do take place as a matter of course. They are often the result of the RBI reducing the repo rates on lending, which reduces the home loan rates for buyers.

After recent rate reductions, many hopeful buyers are waiting for a further drop in home loan rates. But there is no way to predict if further reductions will come about.

Take the home loan now, because…

…it makes sense to invest in a property now rather than later. Also, taking a floating home loan interest gives you a key advantage: the interest can be adjusted at a later date when rates are corrected or revised. Meanwhile, you can take the home loan and buy your dream home right away. The moment the house is paid for, you can move into it and get repairs and redecoration done.

However, do your calculations properly if you are investing in an under-construction property. Though you can get a home loan on it, you pay pre-EMIs every month till you get possession of the house. The EMI cycle starts upon possession. This means that you pay a large chunk of money even before the EMI cycle commences.

In such a case, it is better to look for an under construction property that is nearing completion date.