TARAK Desai, an IT specialist, wanted to buy a home in Pune for a long time. The only thing stopping him from buying a home: higher property prices and higher interest rates.

Now that banks have been reducing interest rates on loans, his EMI burden (equated monthly installment) is likely to ease. Tarak is wondering, then, if he should buy his dream home now or wait for property prices to fall. Let’s find some answers to your questions.

Lower interest rates and lower property prices
Should your decision to buy a home be influenced by changes in lower interest rates or fall in property prices or both.

On one hand there is interest rate fall. Interest rates are subject to change. Today, banks might lower the home loan interest rate but there's no saying which way it would go in a year or two. After all, a home loan is something you are locked into for at least 10 to 15 years. Look at this example:

Property Price (in Rs)	Loan Amount (in Rs)	Rate (in %)	Tenor (in months)	EMI (in Rs)
25 lakh	20 lakh	11.5	240	21,329
25 lakh	20 lakh	9.5	240	18,137

In this case, when the interest rate is lowered from 11.5 per cent to 9.5 per cent, you are saving around Rs 3,000. The interest rate could go up anytime and if it does it's back to where you started.

On the other hand, let's consider a fall in the property prices by Rs 3 lakh or 12 per cent. That is, your desired property is priced at Rs 22 lakh. Now, your loan amount would be Rs 17.6 lakh (20 per cent margin for down payment) at an interest rate of 9.5 per cent. In this case, your EMI would be Rs 16,119. In effect, a 12 per cent drop in property prices can bring your down your EMI by Rs 2,000.

So, it would be better for you to wait for property prices to go down as it is a definitive change than wait for interest rate. And the good news is that prices are falling steadily in many locations across India.

Read: Finally, property rates have fallen!

Calculate: Your EMI

Illustration: Vaibhav Shirke

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