The home loans interest rate story: The wait for the fall
By Joseph Samson
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Buying your own home might be one of the foremost dreams you might have. But, what has been the effect of the hike in the home loan interest rates on you? What should you do? Will the interest rates on the home loans ever come down?

Since 2004, India has been in a booming economy. The retail and housing sector has seen the most of these good times. The property rates and demand for houses has always been high, keeping the brokers and the banks very happy. The banks have responded to the increase in the demand for home loans by increasing home loan interest rates. This did have an effect on the home loan borrowers in the recent past, but the booming economy had also lead to an increase in the economic activity, and hence their incomes.

However, the past some months has seen a complete reversal in trends. The inflation rate of 11.63 percent and the corresponding stringent monetary rules by the Reserve Bank of India have left many borrowers seeing their financial burden increased by as much as 25%.

On 24th June, the RBI had hiked the repo rate and the cash reserve ratio by 50 basis points each. Repo rate is the rate which the RBI charges the banks, hence, in a way; a higher interest rate makes it costlier for banks to borrow money from the central bank. Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down.

This article outlines the precautions existing home buyers should take. It also tries to answer the queries which appear on the mind of every individual who wishes to buy home loans.

Floating or fixed interest rates

The hike in the RBI’s rates has lead to banks hiking the interest rates on all its loans. The biggest of banks have taken lead in hiking their banks’ lending rates. Home loans haven’t escaped their clutches either. However, many industry watchers believe that the interest rates appear to be at their peak or nearing it. This, however, has confused the new home buyers whether to opt fixed or floating loan rates.

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