EMIs up, still right time to take the plunge!

For those aspiring home-buyers still sitting on the fence, spooked by the RBI raising repo rate by 0.40 per cent to 4.40 per cent recently, making home loans slightly costlier, the message is -- the longer you wait to take the plunge, the higher will be your property cost.



Home loan interest rates are now hovering in the range of 6.9 to 7.2%, which is still affordable and most industry experts feel this is the right time to buy because even if the interest rates go up in the coming months, it will still be much lower than the historic pre-Covid highs of around 8.5%.

The past three years of the pandemic have seen a continued reduction of home loan rates, touching a mouth-watering low of 6.4% in the last quarter of FY 2021, exciting home buyers and resulting in brisk property sales over the last two years, a trend which started after the first lockdown when people had ample time to search for properties and online enquiries and sales increased exponentially.

This surge was further boosted by difficulties in finding rented accommodation, the spread of the pandemic and care issues. The developers also contributed to the buoyancy by offering lucrative discounts and innovative ownership schemes. All these factors combined to catalyze a boom in real estate transactions.



While interest rates have now started moving up due to high inflation and excess liquidity in the market, the government has also stepped in to curb inflation by raising rates. However, the raging war in Ukraine and the increasing geopolitical conflict will play a crucial role in determining market dynamics since the Indian economy is largely dependent on oil import bills and we are facing an oil-related inflation. Under the circumstances, the government can play its bit by extending home ownership schemes to sustain the demand, particularly among the LIG/MIG segment.

The RBI’s move to increase repo rates translates into higher home loan cost for buyers, for sure. For instance, if your borrowing is INR 50 lakh, your EMI will increase by around INR 1200 at the existing rate of say 6.7% for a tenure of 20 years. The corresponding hike in EMI would be in the region of INR 1800 for a 75 lakh loan.

So how do I manage my EMIs now?
For existing borrowers, there are two options. One can either increase the tenure of home loan repayment and keep the EMI amount same, or you can part-prepay your loan to whittle down the monthly installment amount. Most borrowers tend to stretch the tenure of loan repayment to keep the EMI constant, which means you will need longer to repay your entire loan. However, the most viable alternative is to prepay the loan to the extent possible and reduce the tenure. This can lead to substantial savings in the final analysis.



Given the innate energy and dynamism in today’s real estate market, Pioneer Property doesn’t believe there will be any significant hike in home loan interest rates by commercial banks this year, perhaps in the region of 0.6 to one per cent. So the property market is still a very safe bet to park your savings, since this uptick in the real estate scene is only expected to gather further momentum, with prices set to jump in all the segments. So the value of your property will keep appreciating.

With rebates in stamp duty and registration fees still on, and a whole basket of options to choose from in every segment, it is unlikely that the marginal rise in the cost of home loans till now will have a massive bearing on the market in the short to medium term.