How Will Altering Interest Rates Affect EMI of Home Loans

Interest rates do play a major part as far as home buying is concerned. Every home buyer needs to be aware of the same and should include in the home buying decision. The current interest rate on the home loans is around the 8% mark. This mark definitely looks attractive as compared to what it was some years back. No matter whether you are planning to take home loans for 2 or 3 BHK in Thane and other parts of Mumbai, knowing the interest rates is of paramount importance.

Know the Effect of the Home Loans in the Interest Rates Largely

You might have seen that a lot of home buyers prefer for a floating home loan rate. If the interest rates witnesses’ downfall after taking taken the loan, the borrower has to wait for a year for revision. The reason for the same is because most of the banks tend to have home loans on the 1-year MCLR rate basis. The tenure of the home loan ranges around 20 years which seems to be a long period. Hence, a slight increase or decrease in the same can have a great impact on the overall cost of the property.

The Outlook of Home Loan Interest Rate

Home loan interest rates are bound to fall even though the Reserve Bank of India or RBI did not cut the repo rate. As RBI has reduced the money that banks normally set aside as security for the home loans, from 0.4 to 0.25%, banks can lend more to home buyers than they used to. In simple terms, with the statutory liquidity ratio reduced to 50 basis points, the banks now have more of the capital to lend. This can further lead to lower home loan rates. A lot of banks are cutting home loan rates. It is believed, the rates may be reduced by 25-50 bps in the next 12 months.

How Much of EMI Should Home Buyers Pay?

As the EMI payment is concerned, it is vital for the home buyers to keep in mind two major aspects: current cash flow and future cash flow. Banks tend to keep it flexible by keeping lower EMIs in the initial year, while huge EMIs can eat up a large amount of your earnings. This further leaves no or less finance in case of any emergency.

How to Decide on the Home Loan Tenure

The tenure of the home loan can be decided on these following factors:

Income – Ensure the EMI is not more than 55-60% of your monthly income.
EMI Amount – EMIs tend to be higher if you choose lower tenure. If you can pay higher EMIs, then you can opt for lowest tenure.
Age of the Borrower – The perfect way to calculate home loan is 60 years, minus the borrower’s age.
Know the purpose – Know whether the property you are buying is for investment purpose or residence.

Make a wise home purchase with right interest rates.