BANGALORE: The right time to take a home loan is when you want to buy a house. After all, a loan is a means to an end. You should not time your purchase of property based on the interest rate cycle. This is even true for floating rate loans (and 95 percent plus home loans are on floating rate basis). After all, in theory at least, if the interest rates drop in the future, you will get the benefit of the rate drop at that time.
This is not to say that home loan interest rates should not affect your property purchase decision at all. If your loan eligibility is lower than what you require due to high interest rates or you do not have the necessary down payment required for the property, then clearly, you have to postpone the decision and wait till interest rates drop.
In fact, one good thing that has happened is that as rates have dropped over the last one and a half years, the spread between the base rate and the rate chargeable has dropped to as low as 0.25 percent in most cases and home loans are also available at base rates in a few cases. This will make it difficult for banks to provide interest rates even lower than yours to new borrowers in the future, without dropping the interest rates for you as well.
If the bond market signals are to be believed, you will have much lower interest rates in the next 3-9 months. Other factors, such as lower inflation also point to a lowering of interest rates in the future. If you take a home loan from a bank with a low spread over its base rate (not more than 0.25 percent), the chances that you will also get the benefit of any future reduction in interest rates are quite high.
So, if you have made a long-term commitment to a city, have the necessary down payment for the purchase and can make the EMI payments, you should go ahead and buy your dream home. After all, in the near future, your interest rate liability is likely to come down even further.