The Money Show with Mr Raj Khosla | Should You Stretch Finances to Buy Home?

Ms Mubina Kapasi of ET Now interviews MyMoneyMantra Founder & Managing Director, Mr Raj Khosla on THE MONEY SHOW to discuss the topic of home ownership during pandemic. Here are the excerpts from the interview.

Ms Kapasi: All of us aspire to have a home of own but factors such as affordability, cash availability, and good project availability come into picture. However in the given time, the two of the major problems have been resolved: one with respect to cash affordability and the other is with project availability. The banks have been offering the lowest interest rates and at the same time, we can see affordable property deals from developers. Given the ease of borrowing and availability of affordable homes, should one even stretch finances to buy a home? Let’s welcome Mr Raj Khosla to understand how one should go about buying a home in the present times.

Mr Khosla, Home Loan Rates are at decadal lows. Could interest rates stay low?

Mr Raj Khosla: Home Loan interest rates are indeed at a historic low. Several Banks & Housing Finance Companies are currently offering Home Loan Interest Rates below 7%. That’s incredible. These are lowest in the past 15 years. Kotak Mahindra Bank is offering Home Loan rates starting from 6.75%, while other top lenders like SBI, HDFC Ltd & ICICI Bank are also offering home loan rates starting from 6.9% onwards. It’s really Christmas coming early.

In the current scenario, Home Loan Rates will continue to remain at low levels for eligible and qualified borrowers, especially those who have higher than 800 CIBIL Score.

Banks have enough liquidity and CASA balances. With central bank’s constant push for liquidity, look at the current monetary policy, it’s so easy, and check on inflation and lowest repo rates, the conditions will remain conducive for offering affordable loans to home buyers of both small ticket and long ticket borrowers.

So, good times are here to stay as far as rates of interest are concerned.

We’ve been seeing a lot of ads and noise around Home Loan rates starting at 6.75% and 6.9%. But please explain to our views why when they go to a bank they are not going to get such low rates as 6.75% or 6.8%?

Mr Raj Khosla: In the advertisements, lenders advertise the lowest rates of interest. These rates are available to select borrowers who meet their eligibility guidelines. The customers should be aware of the caveats of the advertised rate of interest. The eligibility will be assessed basis the applicant’s age, gender, income, type of occupation/ business/ profession, credit score, property value, location/city and project-specific caveats etc. All of these conditions cannot be highlighted in any one advertisement and thus a customer only when establishes a clear understanding on these points, should they deep dive.

Generally the lowest rates of interest on Home Loans are offered to women applicants and salaried individuals with a stable income source and high credit score. Furthermore, size of loan and value of property could be other factors which can determine the final rate.

While it is always desirable to own a home of own, to what extend an individual should squeeze finances and budget to buy a new home?

Mr Raj Khosla: With the lowest Home Loan interest rates ever and reduced realty prices, this is the best time to buy a home for self use. In fact as far as stretching of finances is concerned, I don’t think an EMI should ever be more than 40-50% of your take home income. As such, this is the limit one should keep in mind before actually going out and borrowing.

Under what circumstances should an investor not stretch their finances? We are still living in fairly precarious times!

Mr Raj Khosla: This is the ideal time to buy real estate for self occupation. Given the turbulence and not knowing when this turbulence will end I would not advise any speculative activity. Despite low rate of interest and best terms available for purchase of real estate, I would not recommend you to take the risk of shouldering an additional EMI in the hope of lucrative rental or possibly rapid appreciation in realty price.

As far as the decision is meant for self occupation, be it purchasing a home, office space or for that matter any property for self occupation, go ahead and take the lead. As long as you are substituting rental outgo with an EMI out go, it is always a good idea to purchase a property. Rightly, go ahead. Otherwise, be wary of moving ahead in lure of cheap property price and cheap lending rate. I would not recommend stretching your finances for buying real estate for investment purpose at this time.