is yours home loan Interest rates have become costlier by 10-30 basis points or bps (hundredth of a bps percentage) in the last few weeks? This is a result of the recent 40 bps repo rate hike by the Reserve Bank of India (RBI). The revised repo rate currently stands at 4.40%. Are you considering moving to a lender that offers cheaper rates? Experts caution against this move.
,rates This is expected to move forward and it is only a matter of time before all the lenders increase their interest rates on repo rate linked loans. Borrowers should wait and see for a few months before taking a decision. More importantly, switching makes sense only if you are reducing the rate by at least 40-50 bps,” said Amit Suri, a Delhi-based financial planner.
Raj Khosla, Founder and Managing Director, MyMoneyMantra.com said, “Borrowers tend to buy and probably turn to lenders after a hike in rates as they can potentially take advantage of lower interest rates. Depending on the rate differential , the savings can be significant for a borrower.For example, for a 20 year home loan 75 lakhs, 0.5% rate difference can save 5.5 lakhs.”
The remaining loan tenure is also another major factor in deciding whether switching makes sense.
If you have only 1-2 years left to pay off the loan, do a cost analysis of the savings you will make in comparison to the charges you will pay in switching.
Switching to another lender levies a processing fee of 0-1% of the loan amount or a flat fee of 3,000-11,000. Some lenders may charge a conversion fee of 0.25-0.75% of the outstanding principal, or a flat fee, which is usually limited. 50,000
Other major miscellaneous charges include stamp duty and fees paid to technical assessors or advocates.
Customers also need to check whether the new lender can levy pre-payment charges if you want to close your loan early.
Borrowers with high creditworthiness stand a chance to negotiate a lower price with their current lender before looking at other lenders, according to Khosla.
“It is advisable for the customer to approach his existing lender for re-pricing of the existing loan. Lenders match competing pricing, especially for good quality borrowers.”
However, Khosla said a slightly lower rate should not be the primary reason for opting for the switch, especially if the lender is a good service provider. “Since home loans usually have a longer term engagement, borrowers should assess the quality of service before ultimately deciding to switch lenders.”