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While equity investors had a lot to cheer, it was not very different for property buyers who have had an unprecedented boom time in the last 3-4 years. The big question is: will the boom time spill over to the current year too?

The coming year could probably be more challenging for property investors as noise of correction is being heard much louder than earlier. While there have been concerns on the supply side as buyers are being wooed like never before, it is likely to be an interesting year for those who invest in property for their own use. More so for those who rely on home loans to fund their property purchase.

As you are aware, the year 2007 was one of the most volatile markets for home loan seekers with interest rates fluctuating over a wide range. The year saw the loan rates going up from 8-9 per cent level to 10-11 per cent and in some cases, banks pushed their rates to even 12 per cent.

The rise, of course, dramatically changed the cash flow equations for property buyers as suddenly they were forced to cough up higher EMIs. With average loan ticket size being well over Rs. 10 lakh in most cities, the increase in EMI was substantial for many.

While rates have stabilised at around 10-11 per cent, the last year’s home loan scenario offers some tips for those who are looking at fresh loans for the current year.

The ever increasing real estate prices had pushed many to look at real estate as a trading option similar to equity and hence you had many investors investing in property with a short-term view of 6-12 months.

The increasing loan rates coupled with correction in property prices have pushed many into a debt trap.

Many of these investors were unable to service their home loans as EMIs went up substantially after the home loan rate hikes.

A higher EMI is bound to squeeze the cash flow and hence may not allow investors to hold on to their property if they invest in the same for short-term gains.

Home loan rates went up in a big way but the time has come for them to pause and hence it may not be wise to look at the fixed rate option now. Instead, go for floating rate as it also allows you the flexibility of pre-closing the loan at a latter date. A word of caution: Read carefully the terms as most banks have customised their loan product. For instance, the penalty on pre-closure of loan varies from one bank to another and even the calculation of interest rate is different.

And finally, keep an eye on the home loan scenario and check out whether your bank is offering the best deal. It may not be a bad idea to switch the loan from your existing bank to a fresh one if it meets the requirement. Often, in the early stage of property investment, the choice of bank is determined by tie-ups or relationship enjoyed by your builder/employer with a particular bank.

This may change over a period of time and hence one needs to be alive to the changing market scenario.

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