Friday, 20 April 2018

The Curious Case of Interest Rates

In the midst of fluctuating interest rates and the possible hike in them, here is a guide on how to stay on top.

 Are you prepared for a possible rise in home loan interest rate?

Interest rate fluctuation keeps home-buyers on their toes. While prospective buyers look for chances of a rate cut to lock the deal, existing buyers focus on the EMIs and chances of an increase in the interest rate. At present, the home loan interest rate is around 8.3 per cent, but the situation may change anytime, and the rate may start going up if the economic indicators become unfavourable. The US Federal Reserve has already indicated that they will increase the interest rate in 2018, which could lead to a hike in interest rate in the Indian economy. Earlier, SBI was charging an interest rate at 8.3 per cent to 8.7 per cent p.a., but recently it has revised the rate to 8.35 per cent to 8.8 per cent p.a, an increase in rate by upto .10 per cent. This is just an indication and soon other banks may follow the course.

“We believe that we are inching towards an interest rate hike. Interest rates have been static for a while now. However, an increase in global rates and domestic consumer price inflation might force the RBI to reconsider its neutral stance and hike interest rates in the near future. We, however, believe that the hike will be marginal, around 25-50 bps,” says Sunil Agarwal, associate dean and director, School of Real Estate, RICS School of Built Environment, Amity University.

If currently a home-buyer is paying an EMI of Rs 42,760 for a loan of Rs 50 lakh with 8.3 per cent interest and tenure of 20 years, then an increase in interest by .1 per cent i.e. at 8.4 per cent rate, he would be required to pay an EMI of Rs 43,075 i.e. an increase of Rs 315 per month and a total increase of Rs 75,574 in the entire repayment period.

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Source: Times of India