About to get a home loan? Rates may be coming down
If you’re almost ready to tie yourself down for a few decades with a home loan, here’s why you should wait just a little longer.
If you have identified your dream home and are about to sign on the dotted line for a loan that will help you buy it, you could save money by delaying it a bit since loan rates are likely to go down soon. Though the RBI has decided against lowering interest rates in its Policy Review meet early in December, which would come as a relief to borrowers, it may do so early in the New Year.
Already major banks have announced a cut in deposit rates, which would signal that lending rates should fall as well.
What should you do?
If you are a new borrower, then a floating rate of interest should protect you if rates actually do fall in the near future. Already the SBI, HDFC Bank and ICICI Bank are offering the lowest rate – approximately 10.15 per cent. You can get a home loan at 10.2 per cent from other PSU banks such as Bank of India and UCO Bank. When the RBI cuts rates, the banks will also adjust their base rates accordingly.
Fixed rate? No way!
Whatever you do, this is not the time for a fixed-rate loan! You will lose out if rates come down.
And if you have an existing loan?
Unless the rate you are currently paying on your loan is much higher when compared with what is being offered at present, stay with your existing loan. When rates fall, you can do a cost-benefit analysis to decide whether to stay or switch.
Remember, the cost of pre-closure of your old loan and the processing fee on your new one (if you are also switching banks) need to be factored in before you make the choice. Some banks offer a switch option for the loan as well, but often that comes with an additional conversion fee that ranges from 1.5 to 2 per cent. So make sure you are getting enough of a benefit on the rate of interest you are paying before you make the choice.