FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Will there be a hike in interest rates soon?
Now there is talk of recession being over, markets being revived and the in general people out of their cautious cocoons where they were waiting and watching before grabbing the loans at attractive interest rates. For the past few months every bank has been vying with each other to provide competitive interest rates that will provide the right platform for the consumer to take up long term loans like a home loan or indulge in the festive spirit by opting for a personal loan.
Last year the same time around there was a heavy spate of cutting down of repo and CRR rates to increase liquidity in the market and encourage banks to cut down lending rates to boost the credit market, which was nose diving and in serious need for revival. The Reserve Bank of India did this by slashing its benchmark rate by 425 basis points to 4.75 percent between October 2008 and April 2009.
The banks held on to their existing bank rates in spite of the initial spate of rate cuts for a long time and then finally started relenting and slashing interest rates in the past few months. In current market conditions the interest rates seem on par or even better than the scenario that existed in 2004 era before the giant crash of the real estate market.
Now there is talk of recession being over, markets being revived and the in general people out of their cautious cocoons where they were waiting and watching before grabbing the loans at attractive interest rates. For the past few months every bank has been vying with each other to provide competitive interest rates that will provide the right platform for the consumer to take up long term loans like a home loan or indulge in the festive spirit by opting for a personal loan. 8 seems to the magical lucky number when it comes to interest rates and the banks are aggressively promoting home loans that hover around 8% at least for the first year of the home loan!
With the economic scenario looking to change for the better and the markets getting on top of any fears of a looming recession, RBI might want to review its credit policy and pull back some of its safety measures taken earlier. This could lead to higher lending rates, which mean loans could get more expensive soon. However, the question is – is the real estate market ready for such a change. Just when people are breathing a sigh of relief and coming out of their caution zone and venturing out to invest in a home – loans becoming expensive could spell bad news. The real estate market may need more time to revive the steep crash. The builders themselves are trying to complete stalled projects, convert existing projects to affordable housing projects etc, to boost the housing market. However, all these measures need more than a couple of months to start showing definite signs of revival and head on to the path of progress.
So though the monetary policy review that is due now is expected to consider an upward hike, leading bankers in India feel that the rate hike may actually happen around December or January and is not likely to be aggressive. News reports from other sources suggest that such revision in rates is unlikely to happen until March 2010, until the end of the current financial year. The economy is expected to improve steadily and head to a 6.5 percent growth this fiscal year that ends in March 2010 before accelerating further into the next financial year.
In any case, interest rates may not be hiked as of now as doing so may not aid the revival of the housing loan market, which is only just beginning to revive with the realty industry slowly starting to rebuild and restructure its projects. However, there might be a few surprises in store when the monetary policy review is actually announced!
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