The government expands the weighting of the home loan. Top 5 Takeaways for Home Borrowers


Home Loans in India: The Government of India has extended the lower risk weight for home loans by one year from March 31, 2022 to March 31, 2023. The Reserve Bank of India (RBI) made the announcement on Friday while discussing the outcome of the RBI monetary policy meeting. The Central Bank of India said the move aims to boost credit flow to the real estate sector. This means that the flow of credit to the housing sector will remain smooth as banks will have more funds available to pay off home loans.

Here we list the top 5 takeaways for home borrowers from moving this RBI:

1]Easy availability of home loans: RBI Gov. Shaktikanta Das highlighted the benefit of a low risk weight on home loans, saying the move means capital adequacy requirements for banks would decrease and it would ensure borrowers had more credit available, particularly for the high-end -Property.

2]Increase in housing loans: The RBI governor added that Indian banks will be allowed to lend more to individual homebuyers without feeling the strain on their balance sheets. In other words, it would help lenders with equity and allow them to issue more home loans, a win-win situation for the new borrowers and the housing sector.

3]Impact on EMI for home loans: Since the RBI left policy rates unchanged, this simply means that the low home loan interest rate regime would continue, meaning that home loan borrowers would not have to pay higher monthly EMI as home loan interest rates at various banks are expected to change status quo to be maintained .

“The real estate industry was preparing for an increase in repo rates and the fact that this has not happened is obviously positive for home loan borrowers,” said Anuj Puri, Chairman of ANAROCK Group.

4]Status quo of real estate prices: After the RBI maintained the status quo on interest rates and extended the lower home loan weighting for another year, developers are less likely to pass rising input costs on to homebuyers. Now homebuilders will not be allowed to hike home prices as RBI’s move could boost homebuyer confidence. Therefore, the PMI of new borrowers’ home loans is expected to remain at lower levels as house prices do not rise.

Rahul Pande – Director of Justo Realfintech Pvt Ltd said: “RBI’s move to maintain the status quo proceeded as expected given the growing uncertainties in the market. Lower interest rates on home loans have been one of the key factors in boosting home sales over the last two years of the pandemic. The decision will further help instill confidence in new homebuyers, who still want to take advantage of reduced interest rates before developers pass on the additional burden of entry costs to homebuyers.”

5]Essen at a fixed rate for home loans: With home loan interest rates at their lowest level in decades, chances are high that banks will hike home loan interest rates. So, it is an opportunity for the home buyers to buy their dream home at the lowest home loan rate available today by opting for a fixed rate home loan.

speaking about the matter; SEBI-registered tax and investment expert Jitendra Solanki said: “Due to the lowest interest rate on home loans, most banks do not offer fixed rates on home loans for the entire term, but for a specific period, say from one year to 5 years . My suggestion for new home loan borrowers is to opt for the fixed rate home loan offered by the banks as the home loan rate would either remain at current levels or rise north in the coming quarters.

advising new home loan borrowers to opt for a fixed rate home loan; Ashish Jain, Managing Director, Star HFL, said: “Adjustable rate home equity borrowers should expect an increase in the interest rate, which consequently increases either the EMI or the life of the loan. One can consider the pros and cons of switching to a fixed rate regime after carefully considering the cost-benefit ratio after scanning the industry offerings.”

The Reserve Bank had streamlined risk weights for individual home loans in October 2020 by only linking them to loan-to-value (LTV) ratios for all new home loans.

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