What factors to consider when taking out a mortgage?

The Reserve Bank of India (RBI) kept its key rates unchanged last month. This has helped banks keep interest rates on home loans low. Some lenders have even continued to reduce it further to support the ongoing recovery. Housing Development Finance Corporation, or HDFC, India’s largest housing finance company, offers home loans at interest rates starting at 6.7% to new applicants, regardless of loan size or loan category. use. He has joined State Bank of India and Kotak Mahindra Bank in driving down mortgage rates in recent months. Kotak Mahindra Bank offers a rate of 6.55% per annum for a limited period, while SBI offers home loans from 6.7%. Home loan interest rates fell below 7% last year. An important factor that decides the interest rate is the borrower’s credit rating. For example, HDFC offers its special rate to those with a credit score of 750 and above. Other factors include the buyer’s age and income. HDFC chief executive Renu Sud Karnad said historically low interest rates, government subsidies and tax breaks have helped home buyers. Interest rates fell on the back of the Reserve Bank of India’s liquidity injection measures to support growth and credit use after the pandemic hit the economy. For now, mortgage rates seem to have bottomed out. However, there are a few things customers should keep in mind before deciding to buy a home in the current scenario. In most home loans, the interest rate is tied to an external benchmark, usually the Reserve Bank of India’s repo rate. Therefore, customers will not be able to benefit from the current lower rates. EMIs will increase as the repo rate increases.

The repo rate remained unchanged at a record high of 4% in the latest monetary policy announcement. You can also opt for a fixed interest rate to insulate your cash outflows from market fluctuations. But the interest rates there are a little higher than the floating rates. Experts believe the central bank could raise interest rates in the first half of 2022. The RBI is also expected to slowly reverse its accommodative policies that have eased liquidity conditions. All of this can lead to higher interest rates. Homebuyers should also consider the cost of the down payment, stamp duty, registration fees and property tax. In Noida, a stamp duty of 7% is levied on the total cost of the purchased apartment. And the registration fee is 1%. These rates are different in each state. Of course, buyers can claim a deduction of up to Rs 1.5 lakh for repayment of principal under Section 80C of the Income Tax Act. In addition to this, a deduction of up to Rs 2lakh can be used on the payment of interest under Section 24B. Borrowers should also consider loan-related fees like processing fees, administrative fees, prepayment fees, conversion fees, legal fees, and inspection fees before taking the big step. Buyers should try to limit their EMI to 25% of their monthly income. And experts say they should invest in move-ready projects as it will save them rent. And it will also protect their interests, as several projects continue to be delayed for years.

Watch the video

Dear reader,

Business Standard has always endeavored to provide up-to-date information and commentary on developments that matter to you and that have wider political and economic implications for the country and the world. Your constant encouragement and feedback on how to improve our offering has only strengthened our resolve and commitment to these ideals. Even in these challenging times stemming from Covid-19, we remain committed to keeping you informed and updated with credible news, authoritative opinions and incisive commentary on relevant topical issues.
However, we have a request.

As we battle the economic impact of the pandemic, we need your support even more so that we can continue to bring you more great content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscriptions to our online content can only help us achieve the goals of bringing you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism we are committed to.

Support quality journalism and subscribe to Business Standard.

digital editor