Will The Mortgage Fall Down in 2023?
Investing in real estate assets is always a smart decision. There are numerous ways to benefit from real estate properties. You can also apply for a loan in dire times by pledging the same. These loans are popularly known as mortgage loans. However, various factors must be considered before applying for any loan. The cost of borrowing funds is among the most crucial and decisive factors. It is denoted by the interest rate charged on loans. Most people wait for loan rates to fall when borrowing funds. However, it can be tough to predict.
Mortgage loan interest rates profoundly impact the real estate industry in India. Homebuyers and real estate investors closely monitor mortgage rates as they affect the affordability of buying or investing in properties. With the recent pandemic, mortgage rates have been volatile, making people wonder about the future trend of these rates. Let’s assess some critical factors to learn whether the mortgage rates will likely fall down in 2023.
Understanding Mortgage Loans
A Mortgage Loan is a type of secured loan commonly used to purchase real estate properties. The property being bought acts as collateral for the loan. In case of default, the lender reserves the right to sell the property and obtain the dues. These loans are also used for constructing a home. Additionally, one can use mortgage loans to refinance a property. A loan against property is also an example of a mortgage loan. The interest rate on these loans is relatively lower than other loan products.
Factors Influencing Mortgage Rates
Now that we have a fair understanding of mortgage loans let’s examine the factors that influence the interest rate for mortgage loans.
- Repo rate
The Central Banking Intuition of a country determines the repo rate. In India’s case, it’s the Reserve Bank of India (RBI). The RBI sets the benchmark interest rate, known as the repo rate, which is the rate at which banks borrow from the RBI. The repo rate has a significant influence on mortgage rates. When the RBI increases the repo rate, banks increase their lending rates, including mortgage rates. Conversely, when the repo rate decreases, banks lower their lending rates, including mortgage rates.
The RBI has been reducing the repo rate since 2019 to stimulate economic growth. The RBI maintained a stable repo rate in the following years to support the economic recovery post-pandemic. Experts predict that the RBI will maintain the status quo until inflation stabilizes. However, the RBI’s actions may not necessarily translate into a similar trend for mortgage rates, which other factors may influence.
- Demand for mortgage loans
The basic price-determining factors of demand and supply also play a crucial role here. High demand for a mortgage loan can lead to increased interest rates. On the other hand, low demand for mortgage loans leads to lower interest or lending rates. The demand for mortgage loans is contingent on various factors, including income levels, job security, interest rates, and the general economic climate. For example, the post-pandemic recovery may increase the demand for mortgage loans, leading to higher interest rates. It’s safe to say that the interest rate is influenced by the demand and vice versa.
One of the most critical factors for mortgage loan rates is the inflation level in the economy. There is a positive correlation between mortgage rates and inflation. The interest rates are usually higher during periods of high inflation. When inflation is high, the central bank may raise the repo rate to stabilize prices. In turn, banks may increase their lending rates, including mortgage rates. Conversely, when inflation is low, banks may lower their lending rates, including mortgage rates. Inflation is expected to remain moderate in the near future, which could result in stable mortgage rates.
- Global macroeconomic outlook
The global macroeconomic situation may also influence the mortgage rates in a country. International events such as changes in the US Federal Reserve’s monetary policy or global economic slowdowns may impact mortgage rates in India. The global pandemic has already disrupted the Indian economy. Any major global economic changes may alter the mortgage rates in 2023.
These were some of the crucial factors influencing the rise or fall in mortgage loan rates. Factors like repo rate, inflation, and global economic condition have a profound impact on mortgage loan rates.