Impact of Lower Interest Rates and GST on Home Loans

Goods and Service Tax (GST) and interest rate have been two of the most important factors influencing the affordability of the home loan to the majority of the population. GST was implemented by the Government of India in 2017 in order to streamline the tax system in India. After its incorporation, GST has left a sizeable effect on home loans. Earlier, home loan borrowers have to pay service tax at the rate of 15%. Now, they have to pay 10% GST on while availing home loans.

GST is not the only expense borrowers are required to pay while getting a home loan. They also have to pay several charges like processing fees, stamp duty, registration charges, etc. to complete the process of home loans. The home loan processing fees are generally between 0.25% to 1% of the total loan amount plus GST. However, 18% GST is applicable only for the purchase of ready-to-move-in properties. When you are buying an under-construction property, you are required to pay 12% GST.

It is true that you have to pay a significant amount as GST while getting a home loan. However, there is good news for you. If you are thinking of buying your dream house with the help of a home loan, then it is a good time to apply for the one. From the last couple of years, home loan interest rates have comparatively low; as a result, getting a loan has become cheaper.

You can get even lower interest rates if you co-apply with a female applicant. Banks offer lower interest rates to female applicants because of low risk. Moreover, they also offer your lower home loan interest rates when your credit score is good.

The current downfall of home loan interest rates is a result of various conditions. From last few years, the real estate market has been stabilized. Moreover, the government has introduced various schemes to encourage home buyers. They are also providing interest subsidy on the home loan. After six long years, the interest rates on home loans have been decreased to the current value. During the last six years, only 1.5% of the decrease was reported.

Lastly, Reserve bank of India switched MCLR (Marginal cost of funds-based Lending Rate) to external benchmark linked lending rates. The sole intention behind this change was the better transmission of rate cut policies. The home loan EMIs supposed to reduce after Reserve Bank of India cutting repo rate. However, due to MCLR reset policies, the borrowers could not enjoy the benefits of the rate cut immediately.

As a result, RBI incorporated external benchmark linked lending rates. The new system is meant to ensure the better transmission of monetary policies. So, home loan borrowers chosen floating interest rates linked to external benchmark system will experience fall in their EMIs after RBI cutting repo rate.