The home loans interest rate story: The wait for the fall

Since 2004, India has been in a booming economy. The retail and housing sector has seen the most of these good times. The property rates and demand for houses has always been high, keeping the brokers and the banks very happy. The banks have responded to the increase in the demand for home loans by increasing home loan interest rates. This did have an effect on the home loan borrowers in the recent past, but the booming economy had also lead to an increase in the economic activity, and hence their incomes.

However, the past some months has seen a complete reversal in trends. The inflation rate of 11.63 percent and the corresponding stringent monetary rules by the Reserve Bank of India have left many borrowers seeing their financial burden increased by as much as 25%.

On 24th June, the RBI had hiked the repo rate and the cash reserve ratio by 50 basis points each. Repo rate is the rate which the RBI charges the banks, hence, in a way; a higher interest rate makes it costlier for banks to borrow money from the central bank. Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down.

This article outlines the precautions existing home buyers should take. It also tries to answer the queries which appear on the mind of every individual who wishes to buy home loans.