Current Market Scenario and its effect on Home Loans

Current Market Scenario and its effect on Home Loans

As per the World Investment Report of 2016, India ranks fourth in developing Asian countries when it comes to FDI. The conference held by the United Nations for Trade and Development showcased how Indias real estate is reviving at a tremendous rate. The endorsement is of the highest order, and due to this, the equity investment has increased a lot. The real estate industry has already attracted $32 billion so far in private equity. This is a historic feat for the country which has had the second best year when it comes to the influx of FDI. Much of this can be credited to the strengthening economy and the changing perception of the world towards India as an investment option.

Most of the people looking to buy a house are well aware of the overpriced market. This had been the case for the last couple of years. However, recent initiatives taken by the government has brought about a favourable climate for home buying. These initiatives shook the real estate sector and brought down the Home Loan interest rates. Among these, few enormous ones are Demonetization and RERA Act. Apart from that, various policies introduced by the government in the form of “Housing for All” and “Pradhan Mantri Awas Yojana” is contributing successfully to the home buying climate.

RBI has introduced several measures which have forced the financial institutions to bring down the rate of interest. With well-known Non-Banking Financial Companies (NBFCs) and other lenders offering Home Loan at an attractive rate of interest, home buying has turned quite favourable. The rate of interest is at an all-time low and thus, now is the most beneficial time for taking a Home Loan.

However, when a borrower decides to take a Home Loan, two questions come to his mind:

  • Will I get the right loan amount?

  • Will I be able to pay the Home Loan EMI easily?

Lenders know this, and thus, they have worked hard in understanding how to make Home Loans worthwhile for the borrowers. They provide Home Loans adhering to both these questions. So what does a lender offer while you seek a Home Loan?

Initiative: A lender wants you to bring at least 15-20% of the total cost of the property. Any lender will not provide you with the 100% disbursement. They will provide you with the loan amount with 80-85% at max.

Down payment: Your Home Loan amount depends upon your financial capability. Thus, if you have INR 20 lakhs for the down payment, you can get a loan amount of INR 80 lakhs.

Income: Apart from the down payment, the lenders also want to make sure whether you will be able to repay the loan or not, and thus they also keep tabs on the EMI-to-Income ratio. It is nowhere written, but lenders often avoid lending if this ratio exceeds 40%.

Let us understand this as an example, suppose you borrow a Home Loan of INR 40 lakhs for 20 years at the interest rate of 9%. Under this scenario, you will have to pay a monthly instalment of INR 35,989.

Thus, for a lender, it is essential that your income should be more than INR 90,000. Only then will you be able to take a Home Loan. This is how EMI-to-Income ratio works.

Furthermore, the recent transformation introduced by the government in the form of Goods and Services Tax (GST) and the Benami Property Act has already started to have a significant impact on the real estate sector. Various Home Loan schemes are ongoing, and in coming months Home Loan is bound to get more favourable. However, make a move sooner rather than later. As in time to come, the interest rates will start to move upwards.

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