Home Loan Rate Cut: Should You Go For A Home Loan Now?

  Author: Naveen Kumar

What Reserve Bank of India (RBI) couldn’t do in almost two years, demonetization has done it in a couple of days. RBI, India’s apex bank, has been reducing the interest rate since January 2015 and has gone for a total reduction of 1.75 percentage point reduction in the repo rate—the rate at which banks borrow from RBI—from 8% to 6.25%. However, the benefit of lower interest rates didn’t get passed on to retail borrowers seeking loans for homes and cars, among other loans.  Banks have ascribed this to lack of adequate liquidity in the banking system as the major reason for this.

 Lowest home loan rate in 6 years Cut to the turbulent days after government announced demonetization of Rs 500 and Rs 1,000 notes. Thanks to the surge of cash deposits in banks, there is surge of liquidity in the banks. The result: some banks have started reducing their lending rate by announcing big reductions in their MCLR (Marginal Cost of Funds based Lending Rate) across all tenures. This will effectively reduce rates for loans like home loans. Incidentally, rate cuts being announced by various banks are one the biggest in recent times and have taken the home loan rate to the lowest level seen in last six years. If you had been considering buying a home, be it your first one or the second one, for an upgrade or as an investments, this might just be the time consider the home purchase if something is in your sights

 Fixed vs floating rate home loan If you do not like home loan interest rate fluctuationsand are willing to pay a little premium for a fixed rate home loan, this might be the right time to lock in to a fixed rate home loan. However, if you wish to take advantage of lower interest rates in the future, it is a floating rate home loan that you need. The bottomline is this: home loan rates have come down for many banks and will do so for others shortly and this means much better times for home loan bargain hunters.