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  1. Availing home loan! Should you wait for lower rates post RBI policy review?

Availing home loan! Should you wait for lower rates post RBI policy review?

Financial advisors and home loan providers feel it may be wise to go ahead and seal the deal instead of waiting, unless you are planning to go in for a fixed rate loan.

By: and | Updated: April 7, 2016 3:12 PM

home loan

Financial advisors and home loan providers feel it may be wise to go ahead and seal the deal instead of waiting, unless you are planning to go in for a fixed rate loan.

Are you planning to buy a house and are confused whether to wait for your home loan provider to reduce lending rates in the wake of rate-reduction signals from the Reserve Bank of India or to just go ahead finalise the purchase instead of waiting?

Financial advisors and home loan providers feel it may be wise to go ahead and seal the deal instead of waiting, unless you are planning to go in for a fixed rate loan.

“There is a widespread feeling that transmission of rate cut signals from the Reserve Bank of India will be happening much faster than earlier. If a home buyer is going a floating-rate loan he or she should go ahead. This is because the benefit of the lower interest rate will be passed on by the lender in any case. However, if the deal is for a fixed-rate loan, it is better to wait since interest rates may fall further as they in a downward slope,” financial planner Anil Rego, CEO and founder, Right Horizons, told FeMoney.

Rego said he would advise borrowers to go for floating rate loan in the current scenario.

Banks and housing finance companies are expected to reduce home loan rates in the wake of Reserve Bank of India Governor Raghuram Rajan announcing a 25 basis points reduction in the repo rate to 6.5 per cent, the lowest in 5 years.

The RBI itself has expressed confidence that lender would pass on the lower rates to borrowers soon. “There is a holistic view this time, there is a rate cut, there is liquidity framework, and Marginal Cost of Funds based Lending Rate (MCLR) has also become operational from April 1. We are quite confident that with combination of all these factors transmission would be much more effective,” RBI Deputy Governor S S Mundra said a day after the credit policy.

Harshil Mehta, CEO, Dewan Housing Finance (DHFL) said though it was certain lenders would lower rates, buyers should not defer purchase decision. “The time for buying your dream home is now,” he said.

Mehta said housing finance companies will pass on the rate benefits. “Low inflationary scenario, reduction in small savings rate, fiscal deficit being under control and lesser likelihood of US Feds increasing the rate over the next two-three month will further boost the faster transmission of the rate cut into the system,” he said.

However, financial planner Arvind A Rao, founder of Arvind Rao & Associates, feels that home buyers can consider waiting for a while for lenders to lower rates. “Lenders may come with lower rates for new loans. Existing borrowers who want to switch to the new rate would would have to pay a percentage of the outstanding. This would be unwise. One can wait and watch how lenders react,” Rao said.

He, however, pointed out that interest rate has not be a major factor in deferring purchase decisions. “Interest rate has not been a key factor in deferring home purchase. Everyone is waiting for a price correction,” Rao said.

On possible price correction, DHFL’s Mehta says buyers should look for the best option among the housing on offer. “While price correction will happen depending on demand and supply in different segments of housing, buyers should look for the best offer available now particularly in the mid segment where large projects are coming up with reasonable pricing,” he said.

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