With rates low, it is easier to buy than rent homes

Housing loan interest rates dipping in past few months

Lower interest rates and stagnant property prices, in combination with the interest subsidy under the Pradhan Mantri Awas Yojana (PMAY), have markedly improved the economics for home buyers, bankers said.

With interest rates falling about 200 basis points (one basis point is equal to 1/100th of 1%) in the last 15 months, EMIs (equated monthly instalments) for small and medium ticket home loans in some cases have fallen below the rent paid for the same property.

According to bankers, for a home loan of Rs. 25 lakh, when the current interest rate of 8.5-9% is coupled with the subsidy benefit under the PMAY, the real interest rate for a home buyer with an income of Rs. 12 to Rs. 18 lakh per annum works out to just 4%, after adjusting for tax benefits. The subsidy amount would be higher if the income is lower.

Economics changed

“Housing loan interest rates have been going down the past few months. While the trend may not continue at the same pace, the reduction in interest rates, in combination with the credit-linked subsidy scheme, has certainly changed the economics guiding the home buying versus renting argument,” Rajiv Anand, executive director, Axis Bank said. The PMAY scheme is available for first time home buyers with family income up to Rs. 18 lakh and for property size up to 110 square metres (1,100 sq. ft. carpet area). “For buyers whose household income is not more than Rs6 lakhs per annum and who are therefore eligible for the 6.5% interest rate subsidy under the PMAY, this is clearly the right time to consider buying a property by availing of a small ticket housing loan,” Mr Anand added.

Keki Mistry, vice chairman, Housing Development and Finance Corporation (HDFC), the country’s largest mortgage financier, said that both interest rates and property prices are favourable for buyers. “Interest rates are not the only aspect. Property prices have not gone up in the last 2-3 years. This is the best time to buy a property,” Mr Mistry told The Hindu. “Don’t look at interest rate in isolation. There is a government subvention scheme that you get today. Consider the interest net of tax benefits.”