 "Some relief for home buyers")
Leading banks and housing finance companies are beginning to cut interest rates on home loans. State Bank of India (SBI)’s special rate for women now stands at 9.10 per cent for a loan up to Rs 75 lakh, while others can get the same for 9.15 per cent. Housing Development Finance Corporation and ICICI Bank have brought their rates (for up to Rs 75 lakh) down to 9.15 per cent for women borrowers and 9.20 per cent for others.
For a new (woman), who plans to take a loan of Rs 75 lakh for 20 years from SBI, the new rate will translate into a lowering of equated-monthly instalment (EMI) by Rs 727. The total saving in interest outgo over the entire 20 years will be Rs 1,74,591 (see table).
Customers on MCLR rates may also not get the benefit of rate cuts immediately. MCLR rates come with lock-in periods of three, six or 12 months. Experts suggest that since we are currently in a declining interest rate scenario, borrowers should opt for the minimum lock-in period, so that the benefit of declining rates gets passed on to them quickly.
Whenever a rate cut happens, existing borrowers need to check their current rates vis-a-vis the best rate offered by their own bank, and also the best rates available in the market. First, they should negotiate with their bank to move them to its best rate. If their existing bank doesn’t do so, they should explore the option of transferring their loan to another player. “If your dues are Rs 50 lakh or above, and if the difference between your current rate and that offered by another player is more than 15 basis points, you should definitely explore the option of shifting. If the amount is Rs 25 lakh, the difference in interest rate should be at least 25 basis points for you to shift,” says Kukreja.
Zero processing fee options available: The processing fee at a new bank could be Rs 10,000-11,000. However, several are currently running schemes that offer no processing fee. This means that the cost of transferring in terms of money would be zero. The only cost involved would be in terms of time and effort.
When you do a loan transfer, be careful about the tenure for which you take the loan. “Suppose that you have already paid interest on the home loan for two years out of 20. When you shift, you should not take a loan for 20 years again, but only for 18 years. By opting for a longer tenure, you will increase your total interest outgo,” says Rishi Mehra, founder, Deal4loans.com.
Sometimes, when you negotiate with your current bank to move you to its best rate, it may ask you for a fee. This is especially true if it has to move you from the base rate to MCLR rate. The fee demanded could be of Rs 5,000-10,000. But, this fee too is negotiable. If your loan amount is high and you have a good credit record, you can negotiate hard with the bank and bring the fee close to zero. Remember that currently you have the option of doing a balance transfer with zero processing fee at a new bank.
More rate wars in the offing: Experts expect the rate war in home loans to heat up further. “In the last quarter of the financial year, you can expect banks to offer attractive schemes to new borrowers, say, a discount of 25 basis points over existing rates. There will be a rush to meet current-year targets and both banks and housing finance companies will go all out for it,” says Satish Kotian, chief operating officer, Aspire Home Finance Corporation.
However, Mehra suggests that if you have found the right property, you should not wait for interest rates to decline. “Get into a floating rate loan with the bank offering the best rate, then keep shifting every two-three years,” he says.
As for whether interest rates have declined enough for borrowers to move to a fixed-rate loan, Mehra says that based on past data, it makes sense to move to a fixed-rate loan when these become available at 8-8.50 per cent. He, however, cautions that if the Indian economy develops, interest rates could trend further downward, and the eight-8.50 per cent rate may appear high.
