Given the current economic situation courtesy of COVID 19, the home loan rates are pretty low right now. So many of you may be actually thinking of acquiring one now. But the conditions should be such that you do not use up all your savings.
In general, most are now strapped for cash, and it may not be an ideal time to buy that dream home. However, even lenders have had to face the brunt. Most have actually reduced the home loan slab rates. So it may, in fact, be the best time to buy a house at present, especially as home loan interest rates are below 7 per cent.
Still, the year 2020 has been very unpredictable, and so there are many things to consider before going ahead. Let us look at all possible factors and then you can decide for yourself if you can manage it all.
Is it the right time?
The numbers do indicate that it is the best time to go forth and get that home loan. This can be easily backed by that fact that the interest rates are uncommonly low. In fact, it has never been this low in almost a decade. Hard numbers are the simplest and best way to understand the whole outlook of things. So let us look at this factoid through an example.
Suppose you were to take a loan of 50 lakhs.
- A couple of years back, the interest rates were about 8 per cent. Taking this into account the interest one would pay on loan is 50 lakh rupees.
- Only a few months before the pandemic, the interest rates were hovering around 9 per cent. This amounts to an interest of nearly 58 lakhs.
- Now with the rates at the lowest many even below 7 per cent, the interest one has to pay is even lesser. If you consider an interest rate of 7 per cent, then the interest will amount to 43 lakh rupees.
So, one can easily see the huge impact even a 1 percent change has on the total interest amount. Hence as the economy begins to recover from this global outbreak, the interest rates are bound to rise. From the calculations above, it is clear that even a small change will affect the amount in a big way. However, the thing to keep in mind is that the interest rate is mostly floating. So in future, they may rise significantly.
What about the down payment, and why does it matter so much?
As a thumb rule, lenders will mostly approve loans up to 80 per cent of the house’s value you wish to buy. This means you need to keep ready a downpayment of a minimum of 20 percent of the value of your desired property. It is sort of an assurance the lender takes as to your payment capabilities. So suppose you want to buy a property worth 50 lakhs you will be able to get a loan of maximum 40 lakhs—the rest 10 lakhs you have to pay as a downpayment.
If you think you can easily meet and handle the above criteria, then take the plunge! The conditions are optimum to apply for a home loan. Though the COVID 19 outbreak has been heartbreaking, the silver lining has been the lower home loan rates. Now that dream home ceases to be just a dream. Choose a good lender (bank or NBFC) and go for it!