In today's anemic loan offtake environment, bankers are screaming from giant hoardings offering lowest interest rates that are good enough to make you want to buy a house even if you don’t need it……. 6.5% Home Loans come with a silent warning.
Banks seeking low risk and return of capital enabled by a 0.35% risk weight from the regulator, they are betting their house on our houses.
In this lies a Caveat Emptor. These rates are floating rates only. They will rise faster than what you may have budgeted for monthly EMI. And with it will increase your tenure and you may realise that after paying for 5 years, your twenty year home loan still has a residual tenure of twenty years.
While the jury is still out on when the rates will start moving up, that they are unlikely to go down further is near certain. I see inflation coming faster than what the pundits are telling us and with this will begin the rate ride up.
If you are taking a home loan this is a great time but in your calculation, mentally budget and be ready for 8% - 8.5% interest rate, for when it does go near there you have room to increase EMI payments. So enjoy it while it lasts, but don’t bet on it to stay this way for too long. If you cannot increase the EMI with rising rates, your tenure will keep extending making you into a modern day Sisyphus.
आज यदि आपने सड़को पर बड़े बड़े होर्डिंग्स देख कर सिर्फ 6.50% या 7.50% ब्याज पर, Fixed EMI होमलोन ले लिया, तो इसके अंदर छुपी हुई रिस्क से सावधान जरूर रहिए । क्योंकि जैसे ही ब्याज की दर वार्षिक 1% बढ़ती है, और आप EMI नही बढ़वाते है तो बैंक, आपके होमलोन की अवधि 20 वर्ष से 24 वर्ष हो जाती है, और यदि ब्याज 2% बढ़ गया, तो फिक्स EMI में आपकी लोन अवधि 20 वर्ष से 30 वर्ष तक बढ़ जाती है । अतः ब्याज दर बढ़ने के साथ, मासिक EMI भी बढ़ाते रहे, नही तो लोन का Tenure बढ़ता रहेगा ।
For the statistically inclined, if interest rates move up by 1% yearly, after you avail the 20 year loan the tenure goes over 24 years (from 20 years) and if interest rate move up by 2% yearly, your tenure goes over 35 years (from 20 years), assuming constant EMI. So by all means take a home loan, but when interest rates move up, be mentally ready to increase your EMI payments. This is a teaser rate. If you are fully stretched now, when rates move up you won't find yourself in a happy place. In your calculations budget a minimum 2% rate increase and enjoy the discount right now while it lasts. Teaser rates on Adjustable Rate Mortgages were at the heart of the 2007 meltdown in the US, memories can sometimes be short.
Remember, banks are betting on multiple houses, you are betting on only one so your room for error is ZERO. Keep that in mind......before signing a home loan mandate.
Disclaimer : This is purely a knowledge sharing article, not offering or influencing any deal or transaction or investments.
Birla WP Management Co.
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