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Indian Real Estate News
New credit policy has advantages for home buyers
Source: Times Property in The Times of India, Bangalore Apr 20, 2012
The cut in the key policy rates by the Reserve Bank of India in its credit policy for 2012-13 comes as a welcome move for the property industry, after 13 consecutive hikes between March 2010 and October 2011.

The RBI lowered the repo rate (short-term lending rate) by 0.50 percent to eight percent. The bank rate was cut by 0.50 percent to nine percent. The cash reserve ratio, however, was retained at 4.75 percent. Significantly, the inflation rate for 2012-13 was anticipated to be 6.5 percent.

Some more good news came in for the realty sector. Along with the key rate cuts, the RBI also abolished the prepayment penalty on home loans that banks used to levy. The RBI accepted the Damodaran Committee recommendations and instructed banks not to charge a foreclosure penalty on home loans that were repaid before completion of tenure. This helps borrowers who set aside funds for a prepayment to bring down the overall interest burden on the home loan. It makes it possible to complete the home loan earlier and plan for a second property as an investment too.

A key factor in today's environment is the unpredictability of the economic factors surrounding home loans. It is clear that borrowers have to plan for at least one interest rate cycle through a home loan tenure. With the fixed rate home loan not being available for a significantly long term, borrowers need to plan for high interest cycles and come up with strategies to prepay along the tenure to help bring down the overall cost of the loan. This Credit Policy helps in such management of EMIs.

The abolition of the prepayment fee helps borrowers channelise other income sources and harness investments to manage EMIs. Going forward, as the markets look up and the growth rate picks up, this will be a boon for homebuyers. The repayment of a home loan will have to factor in part prepayments at least annually to help reduce the interest burden. This can be done with deft investment planning that takes into account the risk appetite and long-term home loan commitment. Insurance policies, recurring deposits and even tax-saving fixed deposits can be used to build a corpus to make these prepayments.

The credit policy for 2012-13 will be a benchmark in the light of the current economic environment.

Tag: Real estate in india, property in india, Indian properties
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