subject: FIXED RATE THE BEST OPTION NOW [print this page] FIXED RATE THE BEST OPTION NOW FIXED RATE THE BEST OPTION NOW
Property prices are all set to go up in the near future. Those planning to buy a house should move now. A dilemma many face is choosing between a fixed and floating-rate loan. Here's advising borrowers to go in for a fixed-rate loan at the moment
Some analysts indicate that home loan interest rates may rise in the near future. There are indicators to this effect. The high inflation rate of around 10 percent could affect the stable macroeconomic and interest rate environment here. The Reserve Bank of India (RBI) may hike the key interest rates again to cool down the inflation rate in the next credit policy review in the next couple of months. The inflation rate has been rising due to the rising food prices. The RBI had hiked the key rates in the Annual Credit Policy for 2010-11. It increased the short-term lending and borrowing rates and the portion of banks' deposit with it by 25 basis points each. The move was aimed at controlling the inflation rate spiral without choking growth. It had hiked the key lending and borrowing rates, as also the mandatory cash reserves banks park with it by 0.25 percent.
The RBI increased the repo and reverse repo, the rates at which it lends to and borrows short-term money from banks, by 25 basis points. It hiked the cash reserve ratio (CRR), the portion of money that commercial banks deposit with the central bank, by an identical percentage. The move was to draw out Rs 12,500 crores from the system. The hike in the repo and reverse repo rates, to 5.25 and 3.75 percent respectively, will raise the cost of funds for lenders.
At that time, borrowers could breathe easy as there was enough liquidity in the system. The policy actions resulted in the cost of funds going up which was absorbed by
the banking system. Moreover, the RBI had said that it will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted. The three major factors that could have a bearing on inflation are uncertain monsoons, volatile prices of crude oil in the international markets, demand pressures.
Presently, all these factors are uncertain. The global factors including the euro crisis, volatility in the stock markets, oil prices etc are all causes of concern. The inflation rate hasn't really reversed. The economic growth is contingent to a large extent on the monsoons. All these micro and macro indicators indicate that the interest rates may again increase in the coming months. Bad monsoon, global cues and spiralling inflation, can push up interest rates.
REALTY ATTRACTIVE
Following the global slowdown the property prices went through a correction. Now, as the economy has staged a recovery, the prices too are on an upward trend. There is more job security and homebuyers are back in the market.
Regardless of the interest rate movements, this is a good time for those planning to buy property to make a move. The question is which one to go forfixed and floating rates.
FIXED RATE IDEAL
Those planning to purchase a house may do well to lock-in their borrowing now. They should go in for a fixed rate loan. As such, there is no concept of fixed rate loans for the entire tenure of the home loan. The interest rate is generally fixed for only two or three years, after which it is subject to revision. Yet, one should lock into a fixed rate loan.
Courtesy ET Realty Dtd: 11/06/2010
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