Home Business Why Interest Rates Are So Important For House Loans?

Why Interest Rates Are So Important For House Loans?


Interest Rates On House Loans And How Do They Impact Repayment?

Several banks offer easy home loans starting as low as 6.75 per cent

Buying or building a house has been that one dream most Indians have had in their entire life cycle. Taking that into account, government policies have regularly been updated to suit the changing needs of home buyers and the dynamics of the real-estate sector. That’s probably one of the reasons why home loans qualify for tax deduction under section 80C. Home loans also ensure multiple other tax benefits. Since the sector has been badly hit by the pandemic, most banks and other finance companies have reduced their interest rates to historical lows to encourage people to invest more in the sector and revive housing demand.

In this background, realtors welcomed the recent decision by the Reserve Bank of India (RBI) to keep policy rates unchanged and said the low-interest regime for housing loans is likely to continue for some time. Housing loans can be taken for buying or constructing a new house or even repairing an old one.

People take the interest rate on their housing loans seriously as it impacts the final cost of the house and also the EMI outgo. They prefer high-value loans for longer tenures, so even a little change in interest rate can lead to big savings or unwanted expenses. Banks usually offer home loans at floating rates, which change from time to time based on external benchmarks. Most banks follow RBI’s repo rate as their external benchmark. Floating rates offer another benefit: there’s no penalty on paying early.

Some though offer home loans at a fixed rate, where the interest rate does not fluctuate with the changing market forces. Another benefit of the fixed loan is stability: you can plan your repayment for the loan tenure as the monthly installment will remain the same. However, lenders charge a little higher rate for this type of home loan. It’s wise to take this type of home loan when the interest rate is low so that you get the most benefit.

Several banks offer easy home loans starting as low as 6.75 per cent. Some banks levy a processing fee on home loans, so people should do detailed research about which bank is charging how much fee to approve their loans.

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