Is this the right time to get a home loan?

Buying a home is by no means an easy thing to do. That too if you are aiming to buy it in a city like Bengaluru where prices are pretty high. Metro cities such as Mumbai and Delhi National Capital Region have more expensive and the more expensive the property is the more you would have to borrow from a bank to buy a property. The more you have to borrow from a bank the more in debt you go. It’s a vicious cycle but it’s not something that can be avoided if you want a home.

The loan that banks give you comes with an interest rate. In the present scenario, if you land up borrowing a crore to buy a property as a principal you land up paying a crore as principal and on top of it a crore as interest. So in total you will land up paying two crores for a home that is actually only worth a crore. That’s how expensive a home loan can get.

The interest charged by the banks is dictated by the Reserve Bank of India. The RBI has a key lending rate called the repo rate which is the rate at which this bank lends money out to other banks. If the key lending rate of the bank goes up then the interest rate charged by the other financial entities will also go up. That would make flats for sale in Bengaluru and other cities more expensive. Conversely villas in Bengaluru and other metros might cost a bit less if the repo rate comes down and the banks comply with this rate cut and lower their interest rates.

The RBI makes a study of the economic situation of the country before making any changes to the repo rate. If the economic climate looks testy and uncertain then the central bank will not slash the key lending rate. But on the other hand if the economic climate looks sunny and positive the bank will adopt a more accommodative stance and will be willing to slash rates. There are other factors such as inflation and the global economic outlook which also have an impact on the RBI’s decision.

Since 2015, the RBI has been steadily slashing the rate. But the banks have not been able to pass on the benefits of the rate cut to its consumers. So even though the central bank has cut the rate, flats for sale in Bengaluru have not seen a dramatic drop in prices. But what has reduced the prices of villas in Bengaluru and other parts of the country is demonetization. The cash flow coming into the banking systems because of demonetization has resulted in the banks dropping the interest rates. The interest rates could drop further in the days to come according to industry insiders. So this might be a good time to think about investing in a home in a metro, tier 1 and 2 cities. Watch the market carefully and decide.

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