It is a dream of each and every person to purchase the own house and live in the “Dream Home”. The banks, NBFCs, Financial Service Providers and the other lenders are aggressively reducing the interest rates for the home loan to support the customers in order to avail the facility of the home loan as far as new home loan customers are concerned. But, if you are an existing borrower, then here we are giving you some guidelines with the help of which you can also get the benefit of the reduced home loan interest rate.
The customers, who have taken a home loan before April 2016, are paying the higher interest rates for the home loan comparatively. This is because such customers are paying the benchmark retail prime interest rates and after April 2016, the banks are giving the benefits of the MCLR (Marginal Cost of Funds based lending rate). Hence, if you have borrowed a home loan from the bank then you can switch the loan from the base rate to the MCLR. The one time switch processing fees or conversion fees shall be charged by the bank. However, the same will be a minimal that is 0.5% on the outstanding of loan amount plus taxes. For example, if your home loan amount is 30 lakh rupees, which is outstanding then the conversion fee or processing fees will be around 15,000 rupees plus the tax rates. The MCLR rate can be beneficial for the customer because the same is dynamic in nature. The MCLR rates help to streamline the process to a greater extent. But, the same comes with a reset option, which means that the interest rates can be reset once a year. Hence, for one year, the changed interest will be fixed till the next date of reset. However, there are some banks, which offer the reset clause of 6 months. That means the return on investment is fixed for the 6 months. This option can be proven quite beneficial, if the interest rates have gone lower. Also, if you are in good terms with the lender, then you can negotiate the interest rate along with terms & condition or even processing fees that can be helpful.
If you have taken a loan from the Non-Banking Financial Companies (NBFCs) or let us say from some Housing Finance Companies (HFCs), then the MCLR system is not applicable there. But, if you want to reset the interest rates for the same, then you shall have to go for the conversion process by paying the conversion charges. Once, you proceed with the decreased interest rates, be it with NBFCs or Banks, you can either maintain the same EMI or you can lower the duration of the loan.
Another, important aspects, through which one can reduce the home loan interest rates is that you have to develop the habit of conducting the cost vs. benefit analysis. For example, if you are an existing borrower and you have only few years left for the repayment of the loan, then it is not advisable for you to proceed ahead with the switch of the interest rate. It might happen that the conversion fees and interest rate, once combined, then you end up paying more than what you are supposed to pay currently. If you are in the early years of home loan, then it is advisable for you to opt for the shift. Also, one should take care that if you are opting for the switch, then it should be proven beneficial in terms of cost.
If your existing lender is not providing you lucrative or beneficial deal, you can go for either balance transfer option or for the refinancing. Though the same is a lengthy process, just like opting for the fresh loan. Again, if you are at the early stage of your home loan, then it is beneficial for you to choose the new lender, with better options and deals. Bu, if you are not at the early stage of the loan and there are only a couple of years left to pay back the loan, then you should ideally stick to the current lender because it may happen that in the process of opting for the new lender, you pay more amount then what you are paying now along with wasting the time.
The borrower has to carefully evaluate the resetting, switching or the refinancing options of the loan as such choices impact the financial situation to a larger extent.
— Amrita Agarwal (@InvestorAmrita) June 30, 2017