How Much You Will Pay For Your Home Loan

Dec. 16, 2011 - PRLog -- An oft asked question by every aspiring home buyer, Harsh Roongta gives some answers on where the home loan market is  headed currently

The year 2011 has been annus horribulus for the residential real estate market in Mumbai and to some extent Delhi. Prices  have climbed up again after the drop in 2009 and volumes have fallen sharply. Interest rates on home loans shot through  the roof on the back of 13 rate hikes by the RBI and demand fell significantly. Conversely, the builders raised prices despite  the shrinking volumes and thus, the volumes shrunk even further. If one wants to know the difference in the impact of rise in  property prices and the rise in home loan interest rates, one has to look beyond Mumbai (and Delhi). Chennai, Hyderabad  and a host of other cities continue to show good demand in spite of the same hike in the interest rate, showing that if  property prices are reasonable, there is a lot of demand even in the current interest rate scenario.

The year 2011 also witnessed arrival of dual rate loans but they did not become popular like their earlier avatar of teaser  rates of 2009-10. These were not able to create the desired impact, as these schemes did not offer any concessional rates as  compared to a regular floating rate loan. In fact, in most options if the customer opts for a fixed rate period of two years or  more, he has to pay a premium over the applicable floating rate. This is, therefore, much more akin to the 'fixed rate' loans  being offered by a limited number of PSU banks where too, the loan reverts to the regular floating rate loan after the 'fixed  rate' period is over. Secondly, the rates for these schemes are equal to or higher than the prevailing floating interest rates  (which can also be negotiated by good customers). Unless a similar negotiation possibility exists, for those who opt for these  dual rate loans, these become less attractive. Thirdly, the premium for the tenure of 'fixed rates' does not make too much  sense, since interest rates are not expected to rise much more than the premium that you are required to pay over the  applicable floating rate.

Coming to the prepayment penalty waiver, it is not clear if the recent RBI's position - pre-payment charges cannot be  charged for a floating rate loan - will be applicable to these part fixed and part floating rate loans. Another trend which  needs a mention here is, 'festive season' offers where banks reduced rates to woo customers. These so-called festive season  loan offers are essentially reduction in already higher rates, except State Bank of India which brought down its rates.  Moreover, these festive offers are not the only way to get reduction in rates. Private lenders are anyway negotiating home  loan rates for their new customers.

However, interest rates may still go up by another 0.25 per cent or so but are likely to stabilise for a while thereafter. If  property prices stay stable (and perhaps drop in markets like Mumbai), we are likely to see a resurgence of demand soon.

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