How Existing Borrowers can Reduce their Home Loan Interest Ratesby Anamika Verma Advisor
In recent times, the Home Loan interest rates have been brought down considerably. Lenders are aggressively reducing the rate of interest which benefits the new Home Loan borrowers. However, what about the existing Home Loan borrowers? What about the borrowers who have taken loan before April 2016? Are they entitled to receive a reduced rate of interest as well? The answer is yes. You can switch to Marginal Cost of Funds based on lending rate (MCLR). Apart from that, several options are also available to you, if you are looking forward to availing reduced interest rate. There are a few ways through which you can gain benefits from Home Loan interest. These are as follows:
One-time MCLR switch: If you are an existing Home Loan borrower and you have borrowed a Home Loan before April 1, 2016, then you are paying interest on base rate. However, with the introduction of MCLR, you can make a switch from a base rate of MCLR any time you want. The MCLR is more dynamic than the base rate; it covers a broader spectrum. The primary reason why it is so beneficial is that it is directly linked to the repo rate. A downward repo rate will help you pay a lower rate of interest has it follows the same. Even if the rates go upward, the benefits earned from the rate of interest will be passed on to the borrowers.
Cost Analysis & Benefits: Before you take a certain decision, it is important that you calculate the total cost. The amount that you are going to incur on the interest has to be calculated properly. The interest you are paying, and the savings that you are doing should be taken into consideration. If the fees you are paying are higher than savings, then you should not switch. The only time when switching will make sense is when the bps difference is 25 or more. It is important to know that the lenders cannot offer you rates lower than the MCLR. However, with a good credit score, you can get a decent deal.
Refinancing options: If you feel that you are being charged with an excessive Home Loan interest rate and there are lenders who are offering you a better deal, you must look forward to refinancing your Home Loan. A Home Loan balance transfer or refinance will help you get a better rate of interest. However, it is important to know that the refinancing process can be lengthy as well as costly. For it to take place, the process has to be started from the scratch.
When should you opt for refinancing?
When you opt for refinancing, it is essential that the processing and transaction fee that you are going to pay be less than your savings on the Home Loan interest rate. Only if this condition is met should you opt for a balance transfer? Refinancing must be resorted to only if there is a difference of 75bps between the current lender and the new lender. Thus when we talk about refinancing, it depends upon three things – the outstanding amount, tenor and the difference in the rate of interest being provided.
These are few of the things that you must consider when looking forward to reducing your interest rate. However, decisions must be taken carefully, and each element must be evaluated wisely before making any move. Thus, consider all the options in-hand before taking any step.
Created on Jun 1st 2018 06:29. Viewed 590 times.