Get the right value of your money by calculating interest rates….

Owning a house is one of the biggest financial goals for many people who wish to buy their dream property. Till a few years back, buying a home seemed to be a daunting task for the common man because of huge property rates, tedious process of application and waiting for months for loan approval. Traditional finances were always a costly option in terms of extremely high-interest rates, stringent payment measures with no time flexibility. 

Borrowing from friends and relatives always had a chance of creating a rift in the relation. Thanks to the efforts taken by leading government and private sector banks & finance companies in India who offer home loans under several customized schemes to common masses to buy their dream homes easily. The process of home approval is quite simple as gone are the days when people had to visit branches to collect the form, filling up, attest the copies, submit with demand drafts and then wait for months on home loans approvals.

While availing housing finance, home loan interest rates are one of the most essential elements associated with it. Without sufficient and careful guidance, it may make a big hole in your pockets in the long run. The most important thing for housing finance interest rates is the fluctuation in the rates based on the market volatility. Therefore, a careful consideration has to be done when it comes to avail a loan and the interest rates applicable to it.

Home loans in India can be taken at interest rates as low as 9 to 10% and come under fixed or floating rate basis concept. Under fixed rate loan the ROI remains constant throughout the loan period, while in floating rate loans the ROI is linked to market conditions and may change periodically. They could be linked to the base rate, inflation, or other parameters, each bank selects its own methodology to fix this base rate. These home loan interest rates have to be declared by the bank each quarter. Some leading private sector banks offer loans in the form of adjustable rate of interest loan, Trufixed loan (2 to 3 year fixed rate variant) or Trufixed loan (10-Year Fixed Rate Variant).

The most beneficial aspect of a person starting with a fixed rate is the interest applicable stays almost constant through the payment tenure. Although, it’s revised every 5 years but the margin is more or less the same. You can have a preset mind towards your loan repayment. You can cut down the expenses, save money in advance and keep the repayment at a set mode. 

In case of floating home loans interest rates, the rate depends on the market volatility, inflation and other economical parameters that could impact the home loan policy. Although, there is always a plus point of getting fairly low rate of interest in floating basis, but you will  also have to save for the days of shooting interest rates. Thus, the fluctuations in the financial market are very sudden and volatile for the common person and rapid changes can hold anyone unprepared.

An understanding of what influences current and future fixed or adjustable rate mortgage rates will help you make financially sound mortgage decision. This knowledge can help you take a decision about whether to choose an adjustable over a fixed rate. You can decide when it makes a sense to refinance your home loan structure. The main objective is home loan interest rates should be curbed so that your home loan gets easier on your pockets in the long run.

Smart moves in a falling interest rate regime

In their first policy review, the new Reserve Bank of India (RBI) governor and the Monetary Policy Committee (MPC) debuted with a repo rate cut of 25 basis points (bps), bringing it down to 6.25 per cent. While fixed-income investors stand to lose from falling interest rates, borrowers stand to gain. Both need to realign their strategies to make the most of this low rate environment.

One more rate cut, perhaps

Experts say rates may soften a little more. "RBI is comfortable with an inflation range of four to six per cent. India is experiencing significant disinflation, with further disinflation possible in pulses. The next few inflation readings may print significantly lower than the RBI's suggested inflation trajectory.

The majority view is that we may now be close to the end of the rate cut cycle. Only a few believe that interest rates are headed structurally downward, allowing for further rate cuts of 100-125 bps over the next 18 months.

Fixed deposits

Fixed-income investors should invest in products that match their risk profile. "When rates begin to fall, investors typically begin to invest in products that are too risky for their profile.

Investors in the highest tax bracket looking to lock into current rates for the long term may buy tax-free bonds from the secondary market. These offer a yield-to-maturity of 6.25-6.35 per cent. Those in the lower tax brackets may bet on highly-rated corporate deposits.

Shift to lower rates

(Home Loan Offers) Interest rates on home loans have come down by around 50 bps since the beginning of the year, with the best rate available declining to 9.25 per cent. If banks decide to pass on a greater portion of the fall in interest rates to customers, home loan rates could fall further.

While new borrowers get the benefit of the latest rates, older borrowers could still be stuck at higher levels, especially if they had borrowed under a different regime, say, base-rate linked, instead of MCLR-linked.

[Source: http://www.business-standard.com/article/pf/smart-moves-in-a-falling-interest-rate-regime-116101200927_1.html]

Indian Real Estate: Looking Back... And Forward

The structural adjustment programme of the early 1990s initiated the liberalization of the Indian economy. The roots of the high appreciation rates on India's property market witnessed during the boom period lie in the reduction of interest rates that were instituted from year 2001 by Government’s continued policy of liberalization of economy initiated in 1991. In early 2004, home loan rates sank to a record low of under 7.5%, and this paved the way for the spiking that typified the country's property rates in many Indian cities.

The very amenable borrowing rates encouraged individuals to avail of home loans to buy residences, where actual property purchase had only been an option for the considerably rich before that. This also brought down the average age of a home purchaser from late 50s to mid-20s, a big change in the way India was buying houses before.

This resulted in a huge demand for real estate all over the country post 2003. After March 2005, Indian real estate rates displayed a seemingly unstoppable upward curve. This was also related to the opening up of FDI in real estate. The market then proceeded to expand at an unbelievable rate, both size-wise and price-wise - in three years, prices were doubled, and so was the construction activity. Adding to this was purchases of large land parcels by developers all over the country. Land banks of this size were never created before. Developers were going places and exploring new territories, and a sense of national players was building up.

This continued right until the slowdown that manifested itself in 2008. The Lehman debacle and the subsequent foundering of global economies were indeed hugely operative factors in this, with changes in House Loan Interest but the fact remains that India’s real estate sector had also reached a stage where maturity was of the essence. In any case, the slowdown served the purpose of bringing many a location and its overenthusiastic rates to its knees.

Tracing the bust…

The slowdown was predominantly brought on by the sharp rise in property rates seen over the preceding 2-4 years, and a large proportion of investor purchases (at times as much as end user purchases) eventually added to the supply of houses. The result was a misleading demand assessment. An adjustment of such irrational growth was therefore natural and expected.

Today, real estate prices have corrected in most overheated locations. Residential, office and retail were all impacted at various levels, but the greatest need for correction was in the residential sector, which had seen the highest price appreciations and as a segment is more sensitive to non-amenable lending norms. The exact degree of impact varied across locations, influenced by local market dynamics and property formats.

In ‘Real’ terms…

The current market dynamics have served the purpose of bringing about a renaissance in the Indian real estate sector. Realistic retail and commercial spaces which are in tune with actual market demand dynamics are now becoming a reality. In the residential space, developers who had previously focused largely on luxury spaces for the cash-rich IT/ITeS and HNI buyer segments have begun launching housing projects for the common man.

Granted, this dynamic is a fluid one which is primarily influenced by the overall performance of the economy. In other words, developers have in the past reacted to upward movements by diluting their focus on affordable housing and going back to higher-priced formats and offerings. However, the incumbent Government's determined drive towards 'Housing for All by 2022' has made its mark with several new incentives for developers and buyers of budget housing. This will ensure that a good cross-section of Indian builders will retain their focus on affordable housing and mid-income housing for at least a few more years.

Even today, the dominant trend in India is a huge demand-supply mismatch in the housing sector. This would indicate that residential property prices will rise again – and we are indeed witnessing the first signs of this happening already. The corrections that have taken place in overheated cities were required, since developers had priced themselves out of the market. The fact that the slowdown forced them to rationalize their rates has been working to the developers' advantage, and one would have assumed that the recent market dynamics had delivered a clear and unequivocal message.

That said, the rollercoaster ride that Indian real estate was on will not see the same exhilarating twists and turns for some time to come. The onus from now on will be on affordable housing and mid income housing in the residential sector, efficient buildings – in terms of both energy consumption and space utility, at infrastructure serviced locations in the office sector and well-researched expansion plans in the retail sector. The present market vagaries have force-fed transparency into Indian real estate.

[Source: http://www.indiainfoline.com/article/article-latest/indian-real-estate-looking-back-and-forward-116080100157_1.html]

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