Re-negotiate your Home Loan Rate with Bank
With the Reserve Bank of India (RBI) raising key policy rates for the tenth time to control inflation, the base rate (the benchmark rate for all loans) and the prime lending rates (used to determine interest rate for earlier loans) have increased several times. However, while banks have raised the interest rates for their existing home loan customers, new borrowers are getting home loans at lower interest rate.
The various options available with existing borrowers such as pre-pay part of his loan, switch to another bank. However, the most important option that should be first tried is to re-negotiate the interest rate with the bank.
Banks charge a rescheduling fee, which is a function of the interest rate reduction. Vipul Patel, director with Home Loan Advisors, said, “Home loan borrowers should re-negotiate their interest rate with the bank. Banks are willing to accommodate and are more sensitive to small clients.”
A senior banker with a leading private bank said, “If he (borrower) has a good repayment track record and if his EMI is not within his manageable limit, then we may consider. But this can be done only once. He will have to pay a one time rescheduling fee which would be 25-50 basis points if his interest rate reduction is between 50-75 basis points.”
The average rate of interest charged to existing customers is between 11-11.5 per cent while new home loan borrowers are entering at an interest rate of 10.5-10.75 per cent.
Ram Sangapuri, general manager with Central Bank of India, said, “This may not be very beneficial to the borrower as banks have a waiting period for passing on the benefit of the revised (reduced) interest rate. The waiting period could be quarter or half year depending on the loan contract. Also he gets the benefit only till the next rate hike.”
“Since public sector banks are not so profit oriented, many don’t charge a rescheduling fee. Some times banks may consider reducing the rate as a one time measure. However, I would say that the interest rate difference between existing and new borrowers is not more than 50-75 basis points which gets corrected over the loan tenure,” added Sangapuri.
However, for those who have surplus funds that are not giving good returns, these should be used to pre-pay their loans throughout the loan tenure. Several banks allow a home loan borrower to partially prepay up to a certain limit without any penalty. However, if the home loan borrower decides to prepay the full outstanding loan amount, then he is likely to incur the highest prepayment charge. Do find out the specific prepayment penalty levied at different stages of the tenure of the loan as banks have different charges for prepayment at different timelines.
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