After the Covid-19 pandemic and the resulting economic slowdown in 2020, things were just looking up when the second wave arrived. This no doubt led to adverse effects on the economy due to stringent lockdowns. Moreover, after a long period of low interest rates and an increase in FD interest, there are signs that mortgage loan interests may rise in 2021.
Why will mortgage interest rates rise in 2021?
Impact of the second wave of the pandemic
In April 2021, India recorded a concerning spike in the number of positive Covid-19 cases. The situation worsened as the country registered over 100,000 cases in a day, prompting many states to impose harsh lockdowns. This has undoubtedly disrupted the economy considerably.
However, all is not lost as it seems at first glance. RBI has announced that it will keep its key policies unchanged amid rising pressure to provide more liquidity to the economy. The banking regulator has decided to keep the repo rates unchanged. Though some financial institutions have increased mortgage loan interest rates, most continue providing affordable rates.
The repo rate is the interest rate that the RBI charges financial institutions to lend funds. In case of sudden inflation, the regulatory body may increase this repo rate, discouraging NBFCs from borrowing funds, keeping the interest rates low. There are several factors that affect the interest rate for LAP.
CRR hike, increasing the interest rates
The RBI has recently announced that it will increase the CRR rate from 3% to 4% in the coming months. The Cash Reserve Ratio (CRR) mandates what proportion of deposits a financial institution must maintain as cash. Keeping more cash readily available increases a financial institution’s ability to pay customers should the need arise. Thus, increasing this amount will increase the interest rates of both fixed deposits and loans.
While this is great news for FD investors after a long stint of declining interest rates, it will also increase interest for loans. An increase in home loans, auto loans and loan against property interest rates will increase EMIs and loan tenor, leading to difficulties in managing finances.
Before applying for a loan, borrowers must understand what is mortgage loan and what affects the EMI and interest rates. Potential applicants need to plan their future expenses using tools like a mortgage loan calculator to make sure they can repay their loans. There are several other ways to ensure that you don’t default on your loan against property.
Borrowing costs are bottoming out
After the record low interest rates of 2020, there are signs that the borrowing costs are finally bottoming out. For example, SBI recently withdrew its ‘limited period offer’ and restored original interest rates. Other lending institutions may follow suit leading to the return of the old property loan interest rate regime and developers raising their prices.
Borrowers need to be extra careful in managing their finances as this interest rate increase could disrupt their financial plans. As a result, their loan tenor or EMIs can increase, making it unaffordable for many borrowers. In this situation, debt consolidation helps manage your finances better.
Before the interest rates rise again, you can grab a loan with low and fixed interest rates and save a lot on EMIs. Several financial institutions offer loan against property with both fixed and floating interest rate options.
These pre-approved offers make the loan processing hassle-free and quick. Borrowers can find this option for many financial products like loans against property, home loans, etc. You can instantly check your pre-approved offer with just your name and phone number.
With these few factors into consideration, opt for a mortgage loan to capitalise on the low rates prevalent now.
Additional Read: 7 Things To Know Before Starting an Online Business