By Adhil Shetty
While the Reserve Bank of India has paused interest rate hikes for now and given some relief to borrowers, it is still uncertain how long the pause will continue. These are challenging times as loans have gotten costlier, which means that one’s ability to borrow gets curtailed.
Home loans typically have floating interest rates that reset when the repo rate changes, which are cyclic and unavoidable. What matters more is individual readiness. Borrowers who are planning a home loan may wonder whether they should wait or proceed with their borrowing decisions. Here are some factors that can help make informed decisions and negotiate with lenders on interest rates.
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Your financial health
If you are financially stable and can afford the monthly repayments, then it may be a good time to take a loan. The loan covers 75-80% of your property price. Adding all other costs such as stamp duty and registration, you may need to cough up 30-40% of the base price while the rest can be covered by a loan. However, if you are struggling financially and do not have the margin ready, it is better to wait until you are in a better financial position.
Credit score
If you have a good credit score, you may be able to secure a lower interest rate. Often a score of 750 is considered good enough to easily borrow any loan, but lenders have considered lower credit scores if the credit history of the borrower is clean. If your credit score is more than 750, the chances of getting any loan are not only higher but you may even negotiate for competitive interest rates. Make sure your credit score is in good standing before applying for a loan.
Interest rates
Don’t wait for interest rates to decrease if you can afford to buy a house now. If you borrow at floating rates, interest rates will come down when the repo rate decreases. This will automatically reduce your loan tenor, which will be to your benefit.
How to negotiate
First do your research and compare interest rates offered by various lenders. Check your credit score as it is one of the most important factors that lenders consider when determining your interest rate. Lenders are likely to offer lower interest rates if you have a stable income, a low debt-to-income ratio, and a good credit history.
Also read: Home loan below 9% for people holding higher credit scores – Check latest rates
Also, if you approach a lender where you already have a relationship for a longer time, it might help you negotiate better since it already has your personal and financial records. Take your time and apply for the loan when you think you are ready with all documents and your own calculations of the total cost of the loan.
The decision whether to borrow or wait when lending rates have peaked will depend on your financial situation. The right time to borrow is when you can confidently assess your budget and feel that you can comfortably repay the loan in EMIs over 10-20 years without any delay and default.
The writer is CEO, Bankbazaar
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