Saturday, December 27, 2014

EASY WAY TO TAKE HOME LOAN INTEREST RATE CALL- especially under current scenario

Got lot of calls from known people as well as client family’s, as to what to do with their loans ( More from home loan subscribers/ to be subscribers ), especially in current interest rate market scenario?What to do with Home Loans in current interest rate scenario?

MARKET UPDATE- an Overview- Interest Rates related-

The markets are pretty confusing. If you are watching Money control or NDTV or Bloomberg or UTV or for that matter any of the business channels and if you are following any or all media forms, you will hear and notice, MIXED OPINIONS, - markets are divided- on what is the direction RBI will take on interest rate decision.

The international, political and economic recent news calls for a cautious approach and while there is no fundamental uptick in Indian Companies profits as well. Although the recent oil drop and inflation drop is a positive sign which calls for interest rate cut. Now it depends upon the RBI governer, Mr.Raghuram Rajan, to take the call. Some say he will declare interest rate cut even before next meet, while some say he will wait for the meet to declare the same and some say he will wait to decide and declare the rate cut for this meet and will do only in next meet. While international analysts say he is waiting for next step declarations from US, Europe, Russia, Japan and China and also keeping close watch on Oil rates and inflation rates as well.

My view-

While the RBI has not taken any direction call, our economy is already adjusting. If you have noted, the FD rates going a year ago were around 9.5-10 pct., which is now around 8.75 pct. The 10 year Bond yield of GOI papers is around 7.9 pct currently which was around 8.5 pct in sept. and around 9.5 pct. a year ago.So now there's official call from the Reserve Bank that may take interest rate further down.

So while RBI has not taken the call markets have already adjusted itself.

The recent Confusion for Home Loan Subscribers-

1 What to do if I have a loan currently under floating rate scheme?
2 What to do if I have a loan at Fixed rate?
3 What should I do if I am looking for a loan? Should I go for floating or fixed rate scheme?

The confusion has increased recently, when HDFC re-launched Fixed rate Mortgages i.e. it has re-launched a fixed term, fixed rate home loan scheme, where home loan for 2-3 yrs fixed rate term is in range of 10.15 to 10.35 percentage range and 10.25 to 10.5 pct. fixed term fixed rate range for 10 years.

Below is the Economic times HDFC News cut- ( Please note on the same news it is also written SBI, Union bank, not planning to cut rates )

Above I have briefed the market scenario and the cusp at what it is. The market believes a 50-75 basis downward rate call by RBI in 2015 and infact that is already factored in.

What should be your call on home loan? Well depends upon the following answers from you-

1 What is your market take on interest rate? ( Although very difficult to take interest rate call )
2 At what stage your loan is- i.e. what term is completed and how many years are pending?
3 Your kind of scheme currently
4 What are the switching from one home loan provider to another home loan provider costs?
5 What are special discount benefits the home loan provider is offering?
6 The home loan provider’s hidden charges, if any
7 When the fixed term ends, what would be the scheme of rate applicable?
8 What would be the EMI break-up? And accordingly tax benefit ( individually needs to be calculated with break-up) ?
9 Ease of operation and ease of switching of loan
10 How does it fits in your financial plan and what will be the effects of changes

An overall view on your individual situation ( depending upon above questions answers ) will help you define your Home loan call and for that you can call upon your financial consultant. He/she has the nag of the markets and if you help them understand the above queries, they can suggest you on your approach with more conformity.

What-One-Can-DO after news as on 29-09-2015 after 0.5% interest rate drop declaration by RBI-

The Finance minister asked.
The industry honchos asked. And so the RBI governor said "Take it. Happy now?"
50 basis points repo rate cut was much more than expected. This means banks now borrow from the RBI at 6.75% and get only 5.75% for their deposits with RBI.
While banks borrow at 6.75% from RBI, they borrow from retail investors at more than 9%. Why should they?
Quickly - what all does this mean to you as an investor?

In the short term
- All banks will reduce interest rate on their deposits. SBI and Andhra Bank have already announced reduced rates effective from 5th October.
- There will be a short term bond market rally.
Your debt fund investments will show a healthy gain in your next periodic review
- Foreign investors who have invested for higher rates in India will find it less attractive. Expect a flight of capital, especially NRI deposits, institutional bond market investors etc.
- Market sentiments will spike equity markets.
Banking sector might gain
- If you have a home loan on floating rate - the interest rate should fall.

What you should do?
- If you are planning to do any fixed return investments like bank Fixed Deposits, do them now. Next week, you might get 0.5% lesser.
-Call the bank and ask for lower interest rate on your floating rate home loan
- Keep investing in equities through systematic investments

In the long term
- This is good news for companies who plan to start new businesses or expand. They could borrow at lesser rates. Lesser interest costs mean better profits for industry. Which should reflect in their share prices going up. Good days for equity investors.
- Lesser inflation means more money in the hands to spend. And if saving the money is going to get lesser returns, as well spend it. Good for almost all industries. Good days for equity investors.
- You should be able to borrow at lesser rate for purchase of new house or car or anything else. Ensure your credit score is good. Whether this will improve real estate prices is hard to say.
- Lesser interest rate may be bad news for retirees or those who expect their investments to give regular cash flow. Government will be forced to reduce small savings scheme rates. Expect lesser from EPF / PPF / PO deposits etc.

What you should do
Invest in a portfolio of assets that include debt, equity, real estate and commodities.
Base the asset allocation on your goals, risk profile and cash flow needs
Protect all risks and write your WILL.
Manage Money Well, Live Well !.
Ask your Financial Consultant Now.....
                                                                                       -add on write-up, bhuvana


" Poorna Nazariya " ( Wholesome View ) , is what Arth Shastra says, is important to take any financial decision

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