Why it is good time to buy home when home loan interest are very High ?
Buying a home is a significant financial decision, and one of the most important factors to consider is spread that lenders charge on top of RBI controlled repo rate in home loan interest rate. The Reserve Bank of India (RBI) is responsible for setting the repo rate, which is the rate at which it lends money to commercial banks. When the RBI increases the repo rate, generally lenders decrease the spread to put overall interest rate at reasonable level, which can make it attractive for homebuyers to afford a home loan in long term. There are some benefits of buying a home when the bank spread is low, even if it is due to an increase in the repo rate. Experts observe that repo rate is almost peaked out and there are high probability of RBI reducing the repo rate in 2024.
Below is the long term repo rate chart
Average Interest Rate will be low in long term
The bank spread refers to the difference between the interest rate that the bank charges on a home loan and the rate at which it borrows money from the RBI. When the bank spread is low, it means that the interest rates on home loans will get significantly ?low when RBI decreases repo rate. Which can significantly reduce the cost of borrowing in overall tenure of the loan. With lower spread rate, the monthly mortgage payments will get lower or tenure of the loan will get lower when RBI decreases repo rate since lenders can’t increase the spread after approval of the loan, which can make it easier for buyers to manage their finances even if there is a pain in the short term.
Affordability
When spread rate is low, over all interest pay out during the tenure of loan will get reduced. This is because the average interest rate during tenure of home loan is lower, and buyers can have advantage of reducing tenure or EMI value when RBI reduces repo rate. This can be a good opportunity for first-time homebuyers or investors who may have been on fence to purchase a home or not in current circumstances.
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Long-term Savings
Buying a home when the bank spread is low can result in long-term savings. When the spread rate is low, buyers can secure a lower interest rate ?on home loan for the life of their loan. This means that they will save money on interest payments over the life of the loan. Lower spread rate also mean that homeowners can pay off their mortgage faster and save on interest costs.
Increased Home Value
When interest rates are high, there is often decrease in demand for homes and purchasers can get decent deal on price. Homeowners who buy when interest rates are high can benefit from long term savings ?in interest pay out to lenders which can result in a higher return on investment if they decide to sell their home in the future.
In conclusion, buying a home when the bank spread is low on home loans can be a smart financial decision. With long term lower interest rates, homes become more affordable, and homeowners can benefit from long-term savings. This can be an excellent opportunity for first-time homebuyers to get into the housing market or for existing homeowners to invest in second home and take advantage of the lower spread rate. However, buyers should still do their due diligence and carefully consider their financial situation before making a decision to buy a home.
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