Property Plus
Bangalore
Chennai
Hyderabad
Kochi
Malabar
Thiruvananthapuram
No hopes on softer interest rates
|
Rising inflation could play spoilsport for home loan borrowers in the near term, says SRIKALA BHASHYAM
|
It’s common knowledge that the much feared correction in property market is finally here and from a buyer’s point of view it is good news as prices have got more realistic. Gone are the days when your property builder or seller quoted a higher price during your second visit to him. While prices are moving downwards on the property front, the same can’t be said on the loans front.
Banks are either sticking to old interest rates or are offering discounts only on loans with respect to some property. Going forward, there is not much hope for softer interest rates at least in the short term, due to inflation.
As you are aware, there hasn’t been much good news from this segment in the last couple of weeks and in fact, the inflation has surged towards the six per cent mark. In reality, this percentage is even a tad higher and naturally, is well above the comfort level.
While the Reserve Bank has taken inflation management as one of the key issues for itself, there has been growing consensus among economists that the (average) benchmark rate is unlikely to move below five per cent in 2008. That is not very comforting news for home loan borrowers.
An average inflation rate of over five per cent means a moderate interest rate regime for consumers and hence for those looking to invest in property it would mean higher outgo. Already, EMIs which were in the range of Rs.1,000 per lakh (for 15-year loans) have moved to over Rs.1,100. Hence, home loan seekers will have to strike a balance between their EMIs and cash flows.
Keep EMI low
One of the simplest options is to keep the EMI low so that it does not strain your monthly income. Unfortunately, it is not such a simple task as most of us go in for loan because we don’t have the resources to fund the project through savings.
So, the other alternative is use to go for aggressive shopping of loans or make an effective use of resources to reduce the loan amount.
In the case of the latter, it pays to keep the loan amount below Rs. 20 lakh, as banks are likely to offer cheaper rate on sub-Rs.20 lakh loans due to governmental pressure. The Finance Minister has indicated that banks would be asked to keep the rates low in the case of smaller loans.
A smaller loan amount means higher margin money and one can look at various options for funding the same. Besides traditional sources such as bank deposits and other liquid investments, one can also look at options such as provident fund and insurance policies.
If you have opted for a unit-linked plan, it is much easier to withdraw money from ULIP but make sure that equity market is in a bullish mood at the time of withdrawal.
Even traditional plans such as endowment policies too offer loan facility and this can be a good short-term option as interest is calculated on half-yearly basis.
Besides increasing the margin money, home loan borrowers will also have to increase their efforts in identifying the right lender as the market has once again become competitive. For instance, a daily reducing balance method can lower interest in a bigger way than quarterly or annual reducing method and keep a close watch on related charges such as processing fee and pre-closure penalty.
After a couple of years from the date of borrowing, pre-closure penalty becomes an important factor as there will be more borrowers willing to offer good deals. If you are saddled with penalty, it can be a huge deterrent as it would not allow you to switch loans.
Printer friendly
page
Send this article to Friends by
E-Mail
Property Plus
Bangalore
Chennai
Hyderabad
Kochi
Malabar
Thiruvananthapuram
|
