Despite the ongoing economic upheaval worldwide, the Indian financial market continues to witness significant demand for housing loans.
A recent report revealed that home loan disbursals have increased, especially in smaller towns and regions around bigger cities.
The 10 leading states with the highest housing loan seekers include Haryana, Maharashtra, Telangana, Chhattisgarh, Karnataka, Gujarat, Goa, Puducherry, and West Bengal.
- As of March 2019, growth of the housing loan market in India stood at Rs.11.5 trillion.
- During 2021 – 2026, growth at CAGR of 22% is expected for the Indian housing loan market.
Such market growth is anticipated owing to the reasonable mortgage rates and increased urbanisation. The interest rates on housing loans are comparatively lower in India than other developing economies. Therefore, the major demand is also among salaried or other individuals with a specified spending capacity.
Of all the secured credit options available in the Indian financial market, home loans are the most viable and affordable products for purchasing a residential property. Two main factors primarily command such a market growth of home loans in India.
- Interest rates
Interest rates emerge as a vital factor in decision-making while availing housing loans. While your repayment ability directly influences the rate of interest, the latter also determines the overall cost of the loan.
Here’s an instance of how interest rates influence the total cost:
- If you take a loan amounting to Rs.20 lakh at 7% interest rate for a repayment period of 20 years, the total cost of the loan will be Rs.37,21,435 precisely. Its total interest payable will thus be Rs.17,21,435.
- If Rs.20 lakh is taken at 8% rate of interest for the same tenure, the total amount payable stands at Rs.40,14,912 and the interest payable by the tenure’s end will be Rs.20,14,912.
Interests on secured loans are always lower compared to unsecured credit options. However, housing finance companies (HFCs) come with varying rates for borrowers which can significantly impact their total interest outgo and the overall repayment liability. Thus, when availing the advance, you can look out for top tips to decrease this interest rate on housing loan so that the overall financing burden remains in check.
The current home loan interest rate is also quite attractive, making home buying an affordable proposition even amid other financial stringencies. As a prospective consumer, you can purchase the most suitable residential property with the secured credit and repay with manageable EMIs.
- Repo rate
Repurchase or repo rate is the rate at which financing companies borrow credit from the Reserve Bank of India. It is a major tool used in the monetary and credit policy formulated by the RBI.
- A change in RBI’s repo rate may also result in home loan rate alteration as both are linked via a benchmark lending rate such as RLLR (Repo Rate Linked Lending Rate) and MCLR (Marginal Cost of Funds based Lending Rate). Its rise or fall thus leads to higher or lower EMIs.
- The policy rates are considered to determine the base rates, deposit, and lending rates.
- When the RBI cuts down its repo rate, interest rates on loans are usually reduced by lenders. Lower rates, thus, increase the demand for credit among borrowers.
- The Reserve Bank of India has reduced its repo rate 7 times since February 2019, bringing it down to 250 points collectively.
In its August 2020 monetary policy, the apex financial institution has kept the rate unchanged. However, the previous cuts shall still relieve borrowers as several companies have lowered their repo and MCLR linked lending rates. For the uninitiated, be informed by knowing everything about MCLR based home loans as well as RLLR-based credit thoroughly before proceeding.
- The current repo rate as of October 9th 2020 stands at 4%.
Other factors driving the home loan market in India
Besides home loan rate, prospective buyers have realised the benefit of paying EMIs for their own houses rather than making monthly rental payments, when both valuations are almost equivalent. It has further increased the home buying inclination using convenient housing loans.
Another prominent factor driving this trend is the fear arising out of salary cuts and job redundancies. The add-ons for such a drive are digitisation, better pay packages, and more aspirations among the growing adult community.
Furthermore, the financing sector has received progressive support from the Indian government and other statutory organisations through several policies. For instance, the noteworthy PMAY scheme envisioning affordable housing benefits for everyone has already achieved an impressive milestone so far.
- Close to 60.50 lakh sanctioned housing units are currently at different stages of construction under the PMAY-U scheme.
The program works on the CLSS or Credit Linked Subsidy Scheme principle, under which home loan borrowers can enjoy interest subsidies of up to 6.5% depending on the credit amount availed. Beneficiaries from EWS, LIG or MIG categories are eligible for this facility.
- The government has extended the CLSS for MIG or Middle Income Group till March 2021.
If you are planning for home purchase, construction or renovation, you can avail home loans of up to Rs.3.5 crore. Nowadays, the home loan process in India is simplified and hassle-free. Once you fulfil the eligibility criteria, you can apply for credit via an online application form.
Several leading housing finance companies additionally bring pre-approved offers on various financial products, including home loans, loans against property, etc. These offers make the process of availing credit simplified and less complicated. You can check your pre-approved offer instantly by providing your name and contact number.
Now that you know the various factors responsible for the home loan market growth in India, you can conveniently approach a reliable HFC for the best financing option. Prioritise transparency in their terms and conditions to afford a reasonable cost of the loan effortlessly.