Latest Trends about Home Loan

2020 is seeing optimistic developments as homeowners can eventually purchase their dream house. Land values, currencies and inflation are stagnant, interest rates are lower, and with a recent surge of affordability, various tax benefits and subsidies such as PMAY are providing the real estate industry with a much-required lift. By 2025, the market for home loans is projected to rise from the existing 28 percent to 40 percent.

The housing market has the potential to accelerate domestic growth and is the fourth largest contributor to the country’s GDP. Due to rapid urbanisation with a generational emphasis on nuclear households, lower mortgage penetration and 65 % population under 35, housing demand is at an all-time high in 2020. Interest rates may mainly be constant, but banks are now transitioned to an external index to decide prices that will cause short-term volatility that would favour home loan borrowers in the long run.

Those who took home loans from NBFCs and HFCs are safe from any rate hikes because only banks are allowed to connect their retail loans to external benchmarks and not other financial institutions as required by RBI’s mandate. Both banks such as SBI and ICICI Bank have lowered interest rates on deposits plus home loans by 0.1 percent due to the recent decline in the RBI repo rate. The National Housing Bank also advised banks not to bill home loans with a prepayment penalty, and SBI waived it with other banks who were supposed to follow suit.

In comparison to that of developing nations, the Indian home loan market is somewhat commoditised. Apart from interest rates, few variables decide whether or not a loan can be obtained, such as the duration of the loan, maturity, credit worthiness etc. There is space for innovative financial offerings, such as an overdraft facility that can be sold as a lending alternative for a house.

Interest rates on home loans vary from lender to lender. Citibank now provides the lowest cost of home loans, beginning at 6.75 percent. The minimum interest rate fixed by the RBI that is imposed on the borrower is the reference rate on loan. Often in order to lure more borrowers, financial institutions charge a reduced rate of interest, which is harmful to credit market transparency. Therefore to ensure transparency and continuity in the credit market and limit any malpractices, RBI sets this minimum rate of the interest rate. The base rate and home loans are directly proportional.

Types of rates

• The fixed interest rate remains fixed during the loan’s term and is considered the fixed interest rate.
• The Floating Interest Rate is also known as a flexible interest rate and is subject to the bank’s current loan rates. Floating interest rates will change over the tenure of the loan, unlike the fixed rate of interest. The rate depends on several variables such as monetary policies of RBI, updated MCLR or other lending rates, etc.
• The mixed interest rate remains constant for the home loan for a defined time and then becomes a floating interest rate.

For fixed and mixed rate mortgage loans, banks and HFCs (Housing Finance Companies) charge a higher interest rate so that they can cover for the potential loss in interest profits that might result from fluctuations of interest rates.

It is solely the prerogative of a lending financial institution to offer loans and fix interest rates. There is no set rule for low-rate home loans, but a few primary will help you achieve the best possible rates:

• Opt for a shared home loan with your partner and the primary borrower should be the wife. Women’s home loans are issued at an interest rate that is less than 0.5% of the average rate.

• If the financial company charges a high-interest rate, pick a home loan balance conversion and turn to one that has a reduced interest rate. Competition is tough, and banks don’t want to risk the right customers who have a good credit background and make prompt payments.

Conclusion: A home is not a place, but a feeling; a sense of comfort, security, property, and familiarity. Renting is a decent short-term choice, but since houses raise the value, create wealth and have a nest for the future, people prefer buying homes. Keeping the current trend in real estate in mind, the govt has thus implemented positive changes that would allow people, regardless of their economic status, to buy a home. More demand would stimulate increasing growth in the housing market, which would also lead to a positive trickle-down impact in other industries.