- Want to buy a home? There could be no better time than this!
- Low interest rates, increased savings due to WFH enhance the home loan eligibility for many - Read these in detail here
The real estate sector is witnessing an uptick with many customers taking a home loan to buy a house these days. According to news reports, sales of housing units have risen across major cities, including Mumbai and Delhi-NCR, of late. During October 2020, around 7,929 housing units were registered in Mumbai, clocking the highest ever registrations in the city for the last 8 years. Registrations rose by a massive 42% and 36% on a monthly and yearly basis, respectively. Whereas, Delhi-NCR reported sales of around 3,100 units from July to September 2020, witnessing a quarterly rise of 40%.
Such sharp buying has a lot to do with the increasing home loan eligibility amongst customers. The eligibility has increased greatly owing to interest rates falling to massive lows, stamp duty cut, etc. We will discuss all these here. Let’s read and see if you are also eligible for a home loan basis recent developments.
How Much Have Home Loan Interest Rates Fallen?
Home loan interest rates have fallen to as low as 6.70% per annum, remarkably low from above 8% a year ago. The fall has a lot to do with the massive cut made by the Reserve Bank of India (RBI) in the Repo Rate. The RBI has reduced the Repo Rate, the rate at which the central bank lends to commercial banks, by more than 115 basis points so far in 2020. 100 basis points = 1%.
When the Repo Rate comes down, the cost of funds for banks comes down, giving them more room to cut home loan rates. But in the last two monetary policy meets, the RBI did not change the Repo Rate. Still, it has not deterred banks and housing finance companies from slashing their rates further.
Kotak Mahindra Bank is the latest to have slashed home loan interest rates. Its rates have fallen to as low as 6.75%. Even State Bank of India (SBI), HDFC Limited, LIC Housing Finance and ICICI Bank offer the lowest home loan rate of less than 7%. Let’s check out the home loan rates of top lenders.
|Lenders||Home Loan Interest Rates (In Per Annum)|
|State Bank of India (SBI)||8.05%-8.55%|
|HDFC Limited||8.10% - 9.10%|
|ICICI Bank||8.10% - 8.95%|
|LIC Housing Finance (LIC HFL)||8.00% - 9.25%|
|PNB Housing Finance (PNBHFL)||8.00% - 10.70%|
|Kotak Mahindra Bank||7.99% - 8.75%|
|Bank of Baroda||7.45% - 8.80%|
How Much Has the Home Loan Eligibility Improved Due to Low-interest Rates?
The average home loan interest rate now stands at 6.90%-7.50% per annum compared to 8.30%-9.00% a year ago. Let’s see how much the EMI has fallen over 1 year with this rate cut.
|Periods||Average Interest Rate (In Per Annum)||Average Per Lakh EMI for a 20-Year Loan (In INR)||Average Per Lakh EMI for a 30-Year Loan (In INR)|
|November 1, 2020||6.90%-7.50%||769-806||659-699|
|November 1, 2019||8.30%-9.00%||855-900||755-805|
The average per lakh EMI has gone down by around INR 100 over just one year. Let’s test it on a home loan of INR 50 lakh at an interest rate of 7.30% (today) and compare it with 8.40% a year ago for both 20 and 30 years.
|Periods||Interest Rate (In Per Annum)||Estimated EMI for a 20-Year Loan (In INR)||Estimated EMI for a 30-Year Loan (In INR)|
|November 1, 2020||7.30%||39,670||34,279|
|November 1, 2019||8.50%||43,391||38,446|
You can see the EMI falling by around INR 4,000 across two tenures. If someone was not eligible for a home loan a year ago as the EMI constituted more than 50% of net monthly income or was approved for a lower loan, the ongoing rate fall raises the home loan eligibility. You can accommodate the EMI even better by paying more in down payment.
Stamp Duty Cut
One of the prime reasons for an uptick in sales of housing units in Mumbai is the stamp duty cut announced by the Maharashtra government a couple of months ago. The state government announced a reduction in stamp duty for urban areas from 5% to 2% till December 31, 2020, and 3% till March 31, 2021. Whereas the government has reduced the stamp duty for rural areas from 4% to 1% till December 31, 2020, and 2% till March 31, 2021. So, if at 5%, the stamp duty was INR 1,50,000 before, it has come down to INR 60,000 at 2%. This has significantly increased the purchasing power of people and their home loan eligibility too.
Even though banks and housing finance companies don’t finance stamp duty, such drastic reductions mean customers can accumulate that amount quickly and take a home loan soon after.
WFH Culture Also Enhanced Home Loan Eligibility
The Work from Home (WFH) culture brought in by many corporations in this COVID-19 pandemic has led to enormous savings for employees. Many in the mid to high-income bracket have been able to accumulate the required savings to buy a home. The WFH could stay for long, making many employees confident of servicing their home loan EMIs on time. Lenders are checking bank statements of borrowers carefully and are disbursing the desired loan amount owing to increased savings.
You have seen the factors that have enabled the dream home for many amid these tough times. But if you were waiting for the right time, it’s none better than now with rates falling to extreme lows. If you are also in a WFH mode, you must have saved reasonably high. That can come in handy for buying a home soon.
Times are great for buying a home. But nobody can say it will stay this way throughout. So, if you can pay the EMI at the present interest rate, lock the home purchase deal fast.
Sales figures of housing units across Mumbai and Delhi-NCR are sourced from Financial Express