High Interest Rate on Home Loan, Don’t worry!! Set the Best Rate
If the high interest on your home loan makes your night sleepless, it is the time to be de-stress. Now you must have to take on of these two options.
1) Convert it into lower rate with same bank
2) Do balance transfer with another bank
1. Convert it into lower rate with same bank
A number of banks and HFCs reduce the interest rate on floating rate loans for a fee. You can get the rate reset at a lower level if you are being charged more than what new customers are paying. While some banks charge 25-50 basis points, or bps, of the outstanding loan amount for this, many calculate the fee on the basis of the difference between the rate you are paying and the market rate.
A biggest home loan lender, HDFC charges half the difference between your home loan rate and the market rate. For example, if a customer is being charged 12.5 per cent and the rate for new customers is 10.5 per cent, HDFC will charge 1 percent as one time payment. Similarly Axis Bank charges half a percent if the difference between the rate charged and the market rate is half percent and one percent if the difference is 2-3 per cent. So, it depends from customer to customer
Even the lender, however, retains the right to reject a reset request
After the rate reset, the customer can reduce equated monthly instalments, or EMIs, or the loan tenure
2. Do balance transfer with another bank.
There is also the option of shifting the loan account to a lender offering a lower rate.Since no Banks and NBFCs can charge for fore closure, one can think of transferring the loan to another bank as the best options..Many banks charge 0.25% per cent of the loan amount as processing fee, while some charge a flat Rs 5,000-10,000.
By transferring your loan to another bank you can opt the best deal in terms of rate and tenure
Ourloanguru suggestions:
Typically, a person who has a long tenure left for repayment and a large outstanding loan amount will benefit more. The fee is calculated on the basis of the outstanding amount. If the amount is small, the fee, say experts, won’t fall below a certain point. So, it makes little sense to go for a rate reset in such cases.
I
f the tenure of your loan is not long, you should not opt for a reset. In general, for shorter tenures, it’s not a great idea. If the outstanding loan is Rs 10 lakh and the balance term is 13 years, HDFC will charge Rs 10,000 only once while the benefit of the reduced rate will accrue for 13 years. Therefore, the fee charged will be Rs 10,000/13 years, which comes to Rs 770 a year. For shorter tenure loans, the per year cost will be higher.
Before going for loan transfer, you should look at the ability of the bank to reduce rates in a falling rate scenario. This is because some banks increase rates as soon as the Reserve Bank of India raises rates but are slow in passing on the benefit of any rate cut to customers.