The Reserve Bank of India has further reduced policy rates by 25 basis points to 6.25% while keeping the Cash Reserve Ratio (CRR) unchanged. This is the second time that a rate cut has happened in the current financial year. This is in sync with the central body’s cautious stance on monetary policies.
So, how will this rate cut impact buyer sentiment in the housing sector? For one, we will have to wait and watch to see if the banks reduce their lending rate. If benefits of the rate cut are to be passed on to borrowers, banks must announce rate cuts as well.
While a 0.25% reduction may not look like much, if the rate keeps falling over a period of time AND the banks pass on the benefits, there will be a huge cumulative impact. For example, if home loan rates fall by 0.25%; then on a 9.50% interest on a home loan of Rs 40 lakh for 15 years, total interest will reduce by Rs 1 lakh.
RoofandFloor spoke to a few home buyers for their reaction to the news. Anjana Hegde from Bannerghatta says, “We have identified the property we would like to buy – if home loan rates fall further then we might go ahead with the purchase before 2016 ends.” For Santosh Shirke who bought his own home on Sarjapur Road in November 2015, “The last rate cut was in April, I wasn’t expecting one now but now I will be watching the news to see if home loan rates are cut. If that happens, I will try to reduce my EMIs.”
If you have an existing home loan on flexible interest rate, you can avail the benefits by either reducing EMIs or reducing the tenure. Usually, banks tend to reduce the tenure automatically. You can speak with your banker to confirm this. If you want to reduce your EMIs, contact your banker for details.
If you have been awaiting a good time to take out a home loan, this is it! A reduction in rates combined with high level of unsold inventory with builders, you can bargain for better deals.