Opportunities don't come very often knocking at your door. However, you have to be ready to optimize it to the fullest when they do. After the Covid-19 pandemic scenario, the fact that owning an apartment is much better than struggling with the uncertainties of living in rented accommodation. Now people are realizing why they should own a real estate asset in their investment portfolio, as real estate is a more reliable option offering steady returns compared to high volatile stock market that comes with heightened market risks.
In a recent report by the global consulting firm, it is stated that the level of residential property sales in China stands at around 95% in Mar 2020 when compared to Dec 2019. If the same is bounce back after the lock-down that ended last month in China will be an indication of a trend, similarly the Indian real estate market is also likely to witness a similar scenario after lock-down.
Reserve Bank of India (RBI) has taken a monetary policy decision of slashing repo rate by 0.75 basis points (bps) in Mar 2020. This particular move by apex bank of India has made home loans significantly attractive and given potential home buyers an opportunity that cannot be missed. This steep cut brought rate of interest on home loans by public and private bank to their lowest, between 7.20% to 8.05%.
No doubt it's a very good news for those who are chasing a life goal to own their dream house, and also for those who are desperately looking for right time to take a plunge. If you are one of them, then wait no further.
That's because home loans at prevailing interest rates make substantial savings possible while generating an asset for end-use or investment purposes. In addition, the borrower gets to use the savings resulting from a reduced monthly equated installment (EMI) to allow use of a top-up loan, often available at lower interest rates.
Additional funds can be used for designing interiors related work of house. Alternatively, lower interest rates also give borrowers an option to raise a higher amount of loan which helps in widen the choice in terms of buying a better a bigger house with amazing amenities and lifestyle.
Here’s how it works out numerically.
A back of the envelope comparison of a 25-year home loan of Rs 1.5 crore at interest rates of 8.5% and 7.75% results in an equated monthly installment of Rs 1,20,784 and Rs 1,13,299 respectively. The reduced rate of interest gives the borrower an upfront monthly savings of Rs 7,492. If need be, this money can get the borrower a top-up loan of up to Rs 9.9 lakhs for enhancing the apartment’s look and feel. By claiming tax benefits on principal and interest payments under various sections of the Income Tax Act, the borrower is able to further save Rs 9,722 every month or Rs 1,16,666 annually. The effective EMI for the borrower thus comes down to Rs 1,03,577 (including tax benefits) with an effective rate of interest at 6.74%. That’s almost 1% lower rate of interest on the home loan being availed. (Economic Times)
In fact, for apartments in the affordable housing market, the effective rate of interest on home loans becomes more attractive at 5 per cent. In the case of a shared home loan the overall plan sweetens further when combined with tax benefits.
Surprisingly, if one compares today’s scenario with home loans that ha been offers in 2002-03 the rate of interest has pretty much hovered at similar levels. In fact, lower home loan rate of interest coupled with affordable prices acted as catalysts back then leading to Consistent growth of property prices across markets in the ensuing years.
Another advantage of current home loan rate of interest is borrower can look at the possibility of going for fixed rate of interest rather than floating rate of interest.
Banks and other financial institutions typically charge a premium for home loans at fixed rates. So, it is best availed when overall interest rates are at their lowest. The home loan borrower is able to lock the fixed-rate at a lower level and get rid of the stress.
Those who are looking property for investment purposes and earning rental income have their own set of benefits. Rental incomes are currently pegged at 2.5%. And with effective interest rates at 6.75% the net effect, if a home is purchased for letting out comes to 4.25%. This beat long term inflation figures of India hands down, thus it presents another win-win situation.
Understanding the buyer perspective, buying an apartment is the most expensive financial decision and commitment that an individual makes in his/her lifetime. Keeping overall cost of acquisition in mind, the mid-segment and affordable housing categories have emerged as the most sought after for potential buyers.
Go ahead and make the best use of lowest rate of interest to fulfill your life’s dream.
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