When to best reduce home loan interest rate

 If you're having trouble sleeping because of your house loan's high interest rate, it's time to relax. While you consider whether to break that large fixed deposit to pay off a portion of the loan - which has become much easier now that most banks and housing finance companies, or HFCs, do not charge pre-payment penalties - there is another alternative to consider.

For a fee, a number of banks and HFCs lower the interest rate on floating rate loans. There's also the possibility of transferring the loan account to a lender with a reduced interest rate.

NATURE OF LOAN SCHEMES

If you are being charged more than what new customers are paying, you can have the rate changed to a lower level. While some banks charge a cost of 25-50 basis points (bps) of the outstanding loan amount, many compute the fee based on the difference between your current rate and the market rate.

"If the gap between the rate charged and the market rate is half a percent, we charge half a percent; if the difference is 2-3 percent, we charge one percent. As a result, it differs from one customer to the next "Axis Bank's senior vice president and head of consumer lending and payments, Jairam Sridharan, explains.

The difference between your home loan rate and the market rate is charged by HDFC. For instance, if a consumer is charged 12.5% and the rate for new customers is 10%, HDFC will charge 1%. This is a one-time fee. "However, the lender retains the ability to refuse a reset request," says Sumit Bali, Kotak Bank's executive vice president.

Customers having a history of default may be denied a rate reset by banks. "We run a credit check on the customer. We may not be able to reduce the rate if there is a significant change, such as the person now falling into the distressed profile group. However, this is only done if the person's credit score has significantly changed "Sridharan of Axis Bank agrees.

AFTER CONVERSION

The new pricing is also vulnerable to change, despite the fact that the paperwork is simple. If the Reserve Bank of India, or RBI, hikes policy rates, banks will almost certainly pass those increases on to you. A rate cut, on the other hand, will be beneficial. In other words, the new rate will be a variable rate as well.

The consumer can reduce equated monthly instalments, or EMIs, or the loan term after the rate is adjusted. "We attempt to keep EMIs consistent and shorten the term. Customers can choose lesser EMIs, but they will need to write new post-dated checks to do so. The procedure necessitates some paperwork "Sridharan explains.

Given the market's expectation of a rate decrease by the RBI, a plan like this makes sense. It will not, however, benefit everyone.

WHO SHOULD OPT?

A individual with a long payback term and a significant outstanding balance will often benefit the most. The fee is determined using the outstanding balance. Experts argue that even if the sum is tiny, the price will not decrease below a certain point. In such circumstances, a rate reset makes little sense.

"You should not choose a reset if the term of your loan is short. In general, it's not a good idea for shorter terms "Sridharan explains. This is how it works. If the outstanding loan balance is Rs 10 lakh and the balance period is 13 years, HDFC will only charge Rs 10,000 once, but the benefit of the lower rate will accrue for 13 years. As a result, the fee will be Rs 10,000 divided by 13 years, or Rs 770 each year. The cost each year will be higher for loans with a shorter term.

"It also makes no sense to switch if the difference between your house loan rate and the market rate is only 50 basis points," Sridharan adds.

LOAN BALANCE TRANSFER

Since many banks no longer levy prepayment penalties, moving the loan to another bank may be an option. However, you must consider factors such as the processing charge owed to the new bank while doing so.

Many banks charge a processing cost of 0.5 percent of the loan amount, while others levy a flat fee of Rs 5,000-10,000. A lot of paperwork will be required when transferring a loan.

You should check the bank's ability to lower rates in a decreasing rate scenario before transferring your loan. This is due to the fact that certain banks hike rates as quickly as the RBI does, but take a long time to pass on the benefits of any rate cuts to customers.

The transfer of your documents is also a significant factor. It has been reported that lending institutions have misplaced original documentation. While many banks and HFCs take great care in receiving your original home documents from your previous lender, any failure can result in your property paperwork being lost.

Conclusion

There's no need to be discouraged if your personal loan application is turned down. To boost your chances of loan approval, simply work on improving your credit report and following the methods outlined above. Once you've completed this checklist, you're ready to submit your personal loan application.To find about the best pricing and deals, call our toll-free number +91-9477079053. They'll help you in every way they can. Please contact me at Best Home Loan In India if you have any more.