Home Loan Interest Rates at Record Low: Is This the Best Time to Buy a House?

October 16, 2021 Mutual Fund

Apart from being the financial goal dearest to your heart, buying your own house is usually the biggest purchase in life. As real estate prices are can be exorbitant, most people prefer to buy a house with a loan. Choosing the right home loan is serious business because the home loan interest rate is the most crucial factor that affects the final cost of your house and monthly EMI outgoings. Furthermore, the home loan amount is usually very high, and a lower rate of interest can lead to considerable savings over the long loan tenure.

The government and Reserve Bank of India (RBI) are pushing loans by reducing the repo rate, aiming at credit uptake and improved economic development in the country. In a broader perspective, the demand for home loans is gradually returning to pre-COVID19 levels, which has led to banks and Non-Banking Financial Companies (NBHCs) offering competitive interest rates. Most leading banks are currently offering less than 7% p.a. interest rate on home loans, which they claim to be the lowest in the last 15 years.

As the real estate sector was severely affected by the COVID-19 pandemic, the RBI and Monetary Policy Committee (MPC) had reduced the repo rate to 4% and reverse repo rate to 3.35%, which remains unchanged for the eighth consecutive time since 27th March 2020. And, as per most finance experts, the rates are likely to stay unchanged for some more time.

Leading banks in India, such as State Bank of India and HDFC Bank, are offering a home loan interest rate of 6.7% p.a., which was the lowest rate offered until now. However, Kotak Mahindra Bank has reduced it even further to 6.5% p.a. If other leading banks reduce their rate of interest to compete with the Kotak Mahindra Bank, all banks will have to slightly reduce their home loan interest rates.

Kotak Mahindra Bank has a smaller home loan customer base compared to other leading banks. Therefore, this small change in the home loan interest rate will not affect them much. Furthermore, the offer is available for a limited period. But, leading banks that share a larger home loan customer base will definitely be affected if they consider reducing the home loan interest rates any further. However, since most home loans are offered at floating interest rates, the lenders offering the lowest rate to attract the customers can increase the interest rate once they have acquired a targeted number of customers.

Apart from the reduced repo rate and competition in the market, India is celebrating a festive season, which, too, has contributed to banks and NBFCs offering reduced/lower home loan interest rates. Many leading banks are also offering festive discounts on the processing fees and other service charges of home loans, which can help you save an additional sum. For example, Punjab National Bank has waived off processing fees on all types of retail loans.

Final thoughts:

It is not possible for banks and NBFCs to reduce the home loan interest rates any further. Therefore, according to the experts, now is the best time to avail of a home loan at the lowest possible interest rate if you are planning to buy a house. Moreover, you will also get the benefit of the current festive offers that many banks are offering. Make sure you get all the details of the loan, terms and conditions, including current interest rates and other charges, such as processing fees, foreclosure charges, pre-closure charges, etc., and compare it with the home loans of other lenders and choose the right loan that offers the best value for money.

This article first appeared on PersonalFN here