When repo rates might move northward in view of growing inflation, especially after RBI stayed repo rates at 4 percent for ten consecutive times, home loan interest rates are likely to follow suit. Experts suggest that investors can grab the opportunity to borrow home loans while the rates are still in the lower range.
“Next time, RBI will not have any choice but to raise interest rates in view of the inflation. Crude oil is not going to fall below $100 per barrel anytime soon. So, my view is that the repo rates would increase by at least 25 basis points, if not 50. The same upward impact would be seen in home loan rates too,” says G Chokkalingam, Founder of Equinomics Research and Advisory.
In October 2021, most banks reduced their home loan rates to below 7 percent per annum. Kotak Mahindra Bank reduced rates to 6.5 percent and HDFC Bank slashed to 6.7 percent per annum.
Reports suggest that more than 20 banks and finance companies are offering home loans at a rate of 6.95 percent per annum. But it is important to note that these attractive rates are offered only to the customers who have an impressive credit score i.e., above 700. And those with poor credit score might still have to borrow at a relatively higher rate.
Since repo rates are likely to be raised in the wake of spike in inflation, bank loan rates will follow suit.
These are some of the lowest interest rates charged by banks on home loans
|Bank||Lowest rate charged|
|Bank of Maharashtra||6.40 percent|
|SBI||6.7 to 6.9 percent|
|HDFC Bank||7 -7.75 percent|
|Bank of Baroda||6.50 percent|
|IDFC First Bank||6.50 percent|
|Punjab National Bank||6.50 percent|
Before you decide to borrow money to buy your first abode, make sure that you are familiar with some of the following concepts relating to home loan:
Loan to value: LTV or loan to value is the amount that bank approves out of the total value of the property. It is recommended to use the loan to value wisely. Since most banks approve a maximum 60-65 percent of value while NBFCs offer up to 75 percent of total value. This means you will have to cough up anywhere between 25 to 40 percent of your savings towards the property’s value.
For a property which is worth ₹1 crore, for instance, if you have to contribute ₹25 lakh, and your total cash and liquid assets are, say, ₹40 lakh — then it is advisable to keep some extra funds accessible in run up to increase in interest rates.
Top up loan: It is advised to take a top up loan when you buy a property that requires some additional construction such as installing modular kitchen or changing the flooring.
In such cases, it is recommended to take an add-on loan to make up for the deficit. Some private banks and NBFCs offer top-up loans for these purposes at a slightly higher rate but they are still lower than personal loans.
So, there is no harm in exploring these as well instead of deferring your plan to build your new house.