Home loans get cheaper

Many prospective borrowers complained that while much has been said on the prospects of interest rate cuts, it hasn't been a reality for all home loan borrowers. Their anguish was understandable as till now the good news relating to rate cuts was only for fresh home loan borrowers. Those who have already taken a home loan were left to maintain their EMIs without the benefit of the interest rate fall. There is finally good news for this community too as the State Bank of India has made the first move by cutting rates even for old loans. It's a matter of time before others followed suit. In fact, the pressure will be higher on private sector banks which have not resorted to rate cuts for some time, and with many borrowers looking at the option of switching, these banks could come up with new downward moves in rates in the coming weeks. While the interest rate cut expectation is a thing of the past, the question is will it go back to the old levels of 7-8 percent which contributed to a property boom? Consensus is already building up for the fact that we are headed towards a low interest rate regime in the coming couple of years, in line with global trends. In the case of the domestic economy economy, the trigger for low interest rates has already happened on the deposit front with banks reducing the rate by 1-2 percent in the last few weeks. Now, the deposit rate has come down to single digit even with respect to long term deposits (on 3-5 years) and that would mean banks have access to cheaper funds. With inflation too sliding down at a rapid pace, there is hope for continuance of a cheaper rate regime. In fact, the biggest trigger for cheaper rates has been the inflation rate, and with the Reserve Bank of India (RBI) projecting that we are headed for inflation in the region of three percent, you can expect more support from the index. With the corporate sector being less than aggressive in its borrowing plans, it may take a while for rates to move up because of demand. Hence, for borrowers, there is absolutely no threat of rising rates and that is good news both for fresh borrowers and existing ones. Needless to say, floating rates should be the choice for all borrowers and those who are already sitting on fixed loans too can look at the choice of switching to the floating option. The change of plan makes sense even if you are required to pay charges as interest rates are unlikely to rise in the medium term. It is also the season for existing home loan borrowers to do some shopping as there is a significant disparity in the rate cards of different banks. If you find your banker slow in lowering the rate, try and shift your loan to a fresh lender. Unlike in the past, the shifting of a loan has to be viewed with respect to the amount too as the interest rate is dependent on the amount and tenure. For instance, a Rs 20 lakhs loan is significantly cheaper than a Rs 30 lakhs loan. For existing borrowers the slab becomes important, and hence you should take the option of closing the loan partly to take advantage of the slab. Even a saving of one percentage point would mean a saving of a few thousands in EMIs and the figure can turn attractive over the loan tenure. Hence, existing borrowers have plenty of options with respect to lenders, slabs and products (floating and fixed), and those who can take advantage of all three factors have a lot to gain. Fresh borrowers have little to worry as they are in a good market. (via Economic Times)