Our experts tell you how to take advantage of the reduced home loan interest rates
Recently, some major banks have reduced interest rates for new home loan customers. In fact, this year banks and housing finance companies have been passing on the rate cuts to borrowers. We asked the experts about how to benefit from this opportunity.
On the home loan rate reduction bit, I think we are closer to the bottom right now. I don’t think you will see any further correction from here on. On the rate side in fact, in the second half, you may see some movement in rate increase happening.
Regarding the home loan borrower, when you decide to take a home loan, remember that it is a very integrated decision. Since it is a large ticket size purchase for the individual, you must do a great amount of due diligence on the real estate project for which you are looking for a home loan.
When you are looking for financing, you must shop around and consider looking at two to three financial institutions before you make the final decision. You should look at the rate that is being offered to you and whether it is 6 months or 1 year marginal cost of funds based lending rate (MCLR). You should definitely consider these factors before finalizing the rate.
You should also look at the banks proposal in entirety in terms of processing charge and the insurance cover it provides. While looking at insurance cover, know what exactly it covers—whether it is just the loan amount or the home as well. Today on the digital side, you are getting soft approvals probably only for the salaried segment where you easily get an eligibility.
You should see the track record of the lender in interest rate policy. Now a days, every lender is keen that they should give the best and everyone is equally trying hard and we should assume that everyone is equally capable.
When it comes to the turnaround time, we are at par with the best in the sector. On an average, we do disbursement in 10-12 days. There are even loans which we disburse in 4-5 days. However, we are constantly trying to improve our turn around time and overall delivery further.
Home loan borrowers should be very careful of any hidden charges and huge processing charges. Buyers have to be careful about who has scrutinized their project and paper work. Banks like ours are willing to lose business if the property is not clear.
We are very clear that in the long term, we have to protect the interest of our customer. While lending, we look into customers profile such as how long the customer has been with the bank, loan to value ratio, CIBIL score, etc.
Homebuyers should also look into the interest reset clause whenever they are borrowing. Also, many times financial institutions try to match the EMI with that offered by the banker with lowest interest rate. In the process, they actually match the EMI but the tenure may be longer. You need to look at EMI and tenure together.
Firstly, there are two scenarios—new borrower and existing borrower. For someone who has a home loan already, many a times they are not aware that the rates are lower in the market than what they are paying for. Since interest rates have already come down, as an existing borrower, you need to go in the market and check out the rates.
If you see that interest rate on home loans in the market is low and there is a difference over 75 basis points than what you are paying, you should go back to your bank and ask for lower interest rate. Most banks will ask you to pay a nominal fee and they will be willing to lower the existing interest rate. However, if that doesn’t work and you find the processing fee is too high, you should then go to another bank and get it refinanced. Switching a loan is equivalent of taking a new loan. Hence, keep in mind that there is a process to go through to get the loan changed which may take some documentation work and time.
In the future, there is possibility of further cuts in home loan interest rate. There are two kinds of interest rate such as fixed rate and floating rate. In case the fixed rate loans are low enough, you may want to consider it. But ideally, floating rate is what you should consider. Remember that you can negotiate processing fee.
There have been two main contributing factors to the falling lending rates in home loan segment. While RBI’s 175 basis points reduction in repo rates between January 2015 and October 2016 acted as the main catalyst, the increased liquidity in the banking system post-demonetisation has forced the banks to further reduce their lending rates.
With lenders consistently reducing their interest rates, new home loan borrowers should visit online loan aggregators to find out the best rates available on their monthly income, property and other parameters. They should opt for floating rate home loans only in order to benefit from further rate cuts in future.
As MCLR-based home loans have different rate-resetting frequency, such as half-yearly and annually, opting for the highest available frequency will ensure more frequent loan rate-resets. Existing home loan borrowers should compare their existing interest rates with the best rates available in the market. In case of a significant difference, they should either negotiate with their existing lender or opt for a balance transfer to reduce their total interest cost. For example, a 50 basis points reduction in Rs50 lakh home loan at 8.5% p.a. for 20 years will save Rs1,569 per month and approximately Rs3.76 lakh over the entire tenure.