Is Your Dream of Buying a Home Shattering?

Is Your Dream of Buying a Home Shattering?

In major cities of India, buying a home without a home loan is next to impossible. Hence, the demand for home loans never seemed to subside. But recently, the tables have turned. Home loans have become expensive. Let’s find out how it will impact you as a potential home buyer.

What’s Happening?

In the United States, inflation has skyrocketed, and they are trying to tame inflation by implementing rate hikes. Similar is the situation in India. In 2022, the Monetary Policy Committee (MPC) hiked repo rates thrice. In May 2022, the first hike took place at 40 basis points (0.40%). The second hike was by 50 basis points (0.50%), and the third time, the rate was hiked by 50 basis points (0.50%).

With a hike in repo rate, the lending rates are getting expensive. 

HDFC, the country’s largest housing finance company, has hiked retail lending rates six times in three months, a cumulative hike of 140 basis points. 

How Will a Rise In Home Loan Interest Rate Impact You?

Home loans are expensive, so you will naturally have to pay a high EMI. Or, if you have an existing home loan, then the tenure of your home loan would increase while your EMI would be the same. 

Let’s take an example to understand how an expensive home loan will pinch your pocket.

Let’s say you have taken a home loan of Rs. 1.1 crore with an EMI of around 1 lakh. 

Here is how an expensive interest rate will impact you. 

So, in the above scenario, with an increase in a rate hike of 1.4%, you will have to pay a whopping Rs 40.22 lakhs for extra 40 months! Which is indeed a huge amount. 

The story does not end here. The next question is affordability. With sky-high inflation, fear of global recession, and limited income, can an individual from a mid-income group afford to buy such an expensive home?

Well, the answer is NO. 

According to a report by Economic Times, the home sales between Q1FY22 and Q2FY22 were down by 15% in seven major cities in India.  

What’s Next?

Home loans may get even more expensive if there are any further rate hikes. This will act as a stress bubble for the housing sector because individuals prefer renting a home over buying one.

That’s it for today. Don’t forget to share this article with your friends!

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