Home Loan: Tips to reduce interest rate burden

How many of us fret when thinking about the home loan amount we have to repay?

Well, if we are clever enough, we can find lower home loan rates but we need to know the tactics of acquiring a lower home loan rates, especially as getting a lower home loan rate is quite a challenging task. There are various mortgage brokers and banks that lure their customers to opt for lower home loan rates. But when the customer approaches them for the lower home loan rates, they give them the advertised rates only if they meet the criteria, which are plenty of income, assets, high credit rating and so on.

In most cases the banks and other mortgage agents do not make their customers aware of the changed interest rates and the impact of it on the repayment schedules. There are various banks which only prefer the loan agreement stating that the lender can increase the rate and can accordingly extend the repayment tenure. In case the term does not extend, the bank will raise the EMI amount or demand a lump sum amount from the customer. To avoid such miss deeds from the banks and enjoy lower home loan rate, one should practice following ideas;

Tips to reduce interest rate burden

Should be an active borrower: In order to get a lower home loan rate, you should be a proactive borrower by keeping a check on your loan repayment and the changed interest rates which you will be charged. The base rate initiation had given a hope to the customers that the deals would be more transparent by the lender, which was perhaps not true. Conversely, there are various banks which discriminate their old and the new customers by charging the existing customers with a higher rate when compared to the new deals which are offered to the new customers.

Raise your expression: If the customer is charged with a higher rate, he/she should approach the bank and ask the bank to convert the higher rate to the one which is offered to the new borrowers. Do not be afraid of the bank not accepting you request as a backlog in their progress and penetrating competition in the housing finance sector has made the banks to act instantly. The home loan growth has slowed down to 12.1% from 15% this year.

Negotiation: The new RBI policy has given way for the customers to negotiate with their deals. The banks are willing to negotiate if the borrower has good repayment history. And in case a bank rejects the negotiation request you can appeal for a loan transfer to another bank which might give you a better deal. Many of the times, the principle bank itself agrees for negotiation when a request for loan transfer is received. However, look for the best deal in the market and choose wisely as the bank might charge you for the transfer.

Balance tenure: Ensure that you keep the remaining term of your loan in mind at the time of negotiation. If your loan has less than 10 years, you will not be benefited to a greater extent. You will have an increased benefit if your amount tenure is more than 10 years. The smaller the tenure, the lesser will be your benefit.

Cut the tenure instead of the EMI: When the interest rate of your loan is lowered, do not reduce your EMI although it is tempting to reduce your EMI as it will reduce your burden of your monthly budget. It is better to cut the tenure as having a lower EMI will increase the tenure period with higher interest rates. Perhaps, you should lower the EMI only if you are finding it difficult to pay your EMI every month.

Who should go for an EMI reduction? : People who have taken higher amount of home loan expecting a hike in their salary and have not witnessed any hike in their payment should go in for an EMI cut. Otherwise, in case of families with double income, if a single person loses his job and is unable to work, he can go for this option.

Base rate: Ensure that the new rate which is being offered to you is linked to the base rate of the bank. Do not go in for a promotional rate which is used to lure the customers. Banks which lure the customers with lower rates increase the rates later. Henceforth, do not go in for short term benefits on the loan as acquiring a home loan is a 10-15 years procedure, one should be clear about the loan agreement and the bank base rate.

Cost of changing: If you’re thinking that opting for a new bank will save you from paying higher interest rates, you’re are in a misconception. The conversion of the deal will cost you around 0.5-1.5% by the banks. Opting for a new bank is quite a strenuous and an expensive task as it involves a lot of paperwork and processing charges, though RBI has now made it easier as compared to earlier. Perhaps, you should do a cost-benefit analysis before opting to switch to another bank. Talking about the RBI policy, it has reduced the prepayment penalty which is levied by the banks and the housing finance companies. This makes it easier for the customers to shift to another bank without any hassle.

One should understand that by seeking a loan from a bank, they are not at the mercy of the bank and it is just that they are catering a service and people are availing it for their use. One should pay their EMI’s on time and be informative about the ever changing rates. This will help in saving a lot of money.

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