Expect Home Loan interest rates to be reduced to 7-8 per cent

By Nikita Parekh

image of interest cutWhat if home loan interest rates are reduced to 7-8 per cent from the current rate of interest i.e. 10-14 per cent? You will be thinking is that possible? Yes, it seems to be possible after Union Minister for Urban Development, Housing & Poverty Alleviation M Venkaiah Naidu, said, that the NDA government has decided to bring the ‘infra and housing finance’ in the category of priority sector lending between 7 to 8 per cent and asked the banking and housing secretary to workout modalities.

While announcing the NDA’s plans to categories infra and housing finance sector in priority sector Naidu elaborated their plans and said, “That the Ministry Urban Development, Housing & Poverty Alleviation has made a pre budget representation to this effect to the finance ministry to push for softer interest rate regime for housing and infra projects.”

Government is heading towards implementation of their plans, they have asked the housing and banking secretary would meet to workout modalities for it so that a detailed proposal is sent to RBI to make sure that housing and infra financing is made available at the interest rates of between 7 to 8 per cent as prevailed during the previous NDA regime Vajpayee, the Minister pointed out.

As per a Reserve Bank of India (RBI) circular of February 2014, priority-sector lending is now confined to housing loans of up to Rs.25 lakh to individuals in metropolitan centres with a population above ten lakh, and Rs.15 lakh in other centres for purchase or construction of dwelling units per family. Setting a priority for these sectors is meant to ensure timely and cheaper credit to them.

Government’s decision on interest rates on home loan assumes significance in the light of the government’s aim of providing housing for all by 2022 and to build 100 Smart Cities, where housing will be a major component.

Housing is the one of the most basic and essential necessity of people and buying a home in current market scenario, where inflation is on peak in real estate sector, lower rate of interest will be a huge relief to the home buyers. Currently, housing finance companies are charging 10-14 per cent rate of interest on home loans depending upon the schemes and nature of rate of interest (Whether it Fixed Rate of Interest/ Floating Rate of Interest).

If an individual opts for a home loan for Rs. 25, 00, 000 at the rate of interest of 11% p.a. for a tenure of 20 years, his total payment after 20 years (Principal + interest) is Rs. 61,93,130 i.e. more than the double amount of the home loan. If the interest rates are brought down by 7-8 per cent an individual will end up paying Rs. 48,33,559 an individual can save more than Rs. 10, 00, 000.

This can be elaborated from the below illustration:

Illustration 1:                                                                                                                                   Illustration 2:

hf1

                                                     hf2         The government’s initiative will not only benefit home buyers with affordable homes, it will also give a boost in the real estate market and housing finance market, as it will increase the demand and purchasing power of an individual.





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