Repo Rate Cut Uncertainty: Should You Buy A House Now Or Wait?  

Currently, the repo rate stands at 6.5 per cent, after having remaining unchanged for the sixth consecutive time. The possibility of a rate cut in the future is uncertain

The possibility and timeline for RBI to cut rates is uncertain as the central bank is currently focused on lowering inflation to expected levels.

Source : FreePik

Owning a house is a dream for many in India. This dream has been trending year-on-year as has been reflected in a survey titled ‘BankBazaar Aspiration Index’. The survey indicated that home ownership is among the top 3 goals that Indians aspire to and hold important. However, rising property prices, coupled with high interest rates often make it challenging to fulfil this dream. Home loans are one of the most popular options chosen by homebuyers to make their real estate purchase affordable. However, there are many factors at play that can affect your decision of when to purchase a house. Let’s learn more about them to help you make an informed decision. 

Home loans and repo rate

The repo rate is the rate at which the central bank lends funds to commercial banks. These banks then adjust their lending rates, including for home loans, based on the repo rate. Currently, the repo rate stands at 6.5 per cent, after having remaining unchanged for the sixth consecutive time. The possibility of a rate cut in the future is uncertain. So, considering that, is it financially wise to wait for a rate cut or not? Let’s find out with the help of two scenarios. 

Scenario 1: Rate at 9%

You are considering taking a home loan of Rs 50 lakh for a tenure of 20 years at an interest rate of 9 per cent. In this case, your Equated Monthly Instalment (EMI) would approximately be Rs 44,986. Over 20 years, your total interest payment towards this loan would approximately come to Rs 57,96,775.

Scenario 2: Rate drops to 8.5%

Now, instead of taking the loan at 9 per cent, you wait. Soon after, RBI cuts rates and home loan interest rates drop to 8.5 per cent. Assuming the same loan amount and tenure (Rs 50 lakh for 20 years), your EMI would reduce to approximately Rs 43,391. Your total interest payable over 20 years would approximately be Rs 54,13,978.

Let’s find out how much you would save in these two scenarios with different interest rates.  

Interest Rate	Loan Amount (₹)	Tenure (Years)	EMI (₹)	Total Interest Payable (₹)	Total Amount Payable (Principal + Interest) (₹)
9%	50,00,000	20	44,986	57,96,775	1,07,96,775
8.50%	50,00,000	20	43,391	54,13,978	1,04,13,978

Total savings

If you take a loan at the reduced rate of 8.5 per cent, you would save Rs.1,595 per month on your EMI for the tenure of your loan. On interest payments, you will save Rs 3,82,797.

Factors to Help You Decide

RBI rate cuts and rise in property rates

The possibility and timeline for RBI to cut rates is uncertain as the central bank is currently focused on lowering inflation to expected levels. Delaying your purchase based on an anticipated but uncertain rate cut might while property rates rise, may not be beneficial. The higher property prices may potentially offset the savings you could possibly get with a lower rate loan. 

Assess your current financial situation  

If you are currently financially stable with sufficient savings and a steady income, locking in a home loan at the current rate might be a prudent decision. When assessing your financial situation, don’t forget to account for the down payment you’ll need to make towards your loan. This would ensure that you secure a property at today’s prices, potentially avoiding future price hikes and reap the benefits of price appreciation of your property.

Compare rental costs with potential savings

Moreover, if you are currently living in a rented house, consider the rental costs over the waiting period. The savings from a potential interest rate cut must outweigh the total rent paid during the waiting period to make financial sense. This will help you know whether it makes sense to buy now or wait a little longer.

Compare potential tax benefits

Home loans offer various tax benefits under Sections 80C and 24(b) of the Income Tax Act under the old regime. These benefits can reduce your tax liability, making home loans more attractive despite higher interest rates.

While lower interest rates can lead to higher overall savings, the wait for rates to drop comes with its own uncertainties. When making your decision, remember that construction costs are likely to rise over time and property prices may appreciate. Based on certain factors, a house worth Rs.1 crore today might cost Rs1.3 or higher in the next few years. However, the potential increase in real estate prices could negate the benefits you’d otherwise get from taking a loan at a lower rate. Lastly, assess your income stability and repayment capacity before taking a loan to ensure a smooth repayment journey.

The author is the AGM Communication, BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar.