There is a surety of availing lots of benefits due to cut down in interest rates of home loan as well as by the RBI. The lower interest rates of home loan benefits and encourages the customers of lower, middle and upper-middle segment to invest and buy a home. It is always better to pay EMIs and become the owner of your home rather paying rents. The RBI and the government are taking certain initiatives to remove the difficulty in buying a house. Various Banks/ NBFC’s and other financial institutions had already slashed their interest rates. The interest rates may further go down to encourage people to buy their own home.
I expect interest rates on unsecured loans to remain unchanged. There can be minor reductions in home loan interest rates once the Cash Reserve Ratio (CRR) constraint is withdrawn. But, it is likely to be low and long time between. However, we can expect a rate cut in the next policy meet and this might encourage banks to reduce the lending rates.
Though it is difficult to choose between fixed and floating rate of interest but it depends on the interest rate environment at the time of taking the loan. In the current financial scenario, I would recommend the end users to opt for floating rate of interest. However, the EMI payout may sharply increase with a sharp increase in the interest rates.
Fixed rates would be a better option if the current rates of interests are relatively low and you expect it to rise in near future. Opting for fixed rates can be preferred only when you can predict the certainty and security over market fluctuations.
Borrowers can also opt for MCLR-based home loans in the present interest rate scenario as it will ensure the quick response from banks in terms of rate changes. RBI has made it mandatory for the Banks and other financial institutions to set at least 5 MCLR rates (from overnight to 1yr). Consumers should always consider opting for the Bank or any other financial institution that offers a lowest tenure. You can anytime visit the platforms like mudrahome.com to compare the loan pricing before switching from the current lender.
Cut down in interest rates by Banks/ NBFC’s or other financial institutions reduce the cost of credit for the borrowers and encourage them to take fresh loans to finance the upcoming high amount expenses and investments. Thus, low rate of interest will encourage the businesses to suffer with high capital expenditure and increased demand for capital goods and commodities.
Lower rate of interest also reduces the interest payout for the present retail borrowers and this leaves them with higher disposable income to spend on consumer products. With an increased demand for both consumer and capital goods, the overall GDP growth rate is expected to push upwards.
However, the increased demand for capital and consumer goods may also create differences in the rate of inflation. Therefore, cut down in interest rate should be compatible with increased production of goods and services to balance and keep the inflation under control.