Currently, the economy is going through a slowdown across the board. Due to the slowdown, the prices of property went through a correction. Many experts believe this is the right time to invest in property. Interest rates on home loans have also come down in the last few weeks after the Reserve Bank of India (RBI) cut the policy rates (repo rate, reverse repo rate and cash reserve ratio) drastically during the last four months.

Analysis of condition of economy

Currently, the economic conditions are not good across the world. Many developed countries are in a much worse situation as they have a dip in their real GDP during the last couple of quarters. For example, US, UK, Germany and Japan are already in recession. India is in a better condition.

In India, the economic growth rate has come down from nine percent last year to less than seven percent this year. Analysts and experts are predicting that the bottom of recession has not yet been reached and we may see a further dip in this growth number in the months to come.

Analysis of home loan rates

Home loan interest rates peaked during the middle of last year. They started coming down after the RBI cut the policy rates drastically in the last four months.

Here are some reasons why home loan interest rates are expected to come down in the short to medium term:

Some banks have not yet passed on the full benefits of previous rate cuts to their borrowers. They are taking a cautious approach towards reducing the loan rates and fresh loan disbursals.
The inflation rate has already come under control due to lower commodity prices in the global market The government will pressurise banks to reduce the interest rates on home loans

• For those borrowing now

Looking at the current scenario and expectations of the near term, it is clear that home loan interest rates are not going to go up. It will have a tendency to go down in the near future. Therefore, it is recommended to go in for a floating interest rate home loan scheme. The banks have not reduced rates substantially on fixed interest rate home loan products. Thus, fixed interest home loans come at significantly higher interest rates than floating interest rate loans.

However, it is good to look for banks which provide the option to switch from floating rate loans to fixed rate loans by charging a small fee. Other factors that borrowers should look at include pre-closure or pre-payment penalty, processing fee etc.

• For those who have already borrowed

Some banks have not yet revised the interest rates downwards for existing borrowers in some cases. Such borrowers can consider a switch option. However, they should weigh the cost of the switchover with respect to interest rate differential before making such a decision. The cost of the switch includes pre-closure penalty, processing fee of new loan, registration charges etc.

Many banks provide software that calculates the exact difference in terms of total cost between the old loan and new loan. You can analyse the comparison and look for loans with faster recovery of switchover costs by way of savings from the interest component of EMIs payable under the new loan.