Personal finance expert, Harsh Roongta of apnapaisa.com shared his reading and outlook on home loans and the benefits available to the existing as well as the new customers in case home loan interest rates are reduced.

RBI had ushered in base rate mechanism three years ago to take care of the discrimination between a new and existing customer, in case there was softening in home loan interest rates, but it hasn’t worked. The only good thing is that aware consumers are able to benefit from the fact that there are no prepayment charges, he added.

Below is the edited transcript of his interview on CNBC-TV18

Q: Home loan interest rates have softened a bit and are likely to reduce further but in several cases the benefit of reduction is available first and sometimes only for new consumers. How can existing home loan customers get the benefit of such reductions?

A: Unfortunately this is the same old story. We have had the base rate mechanism that was ushered in by the Reserve Bank of India (RBI) about three years ago and that was supposed to take care of this discrimination between new and existing consumers. But that hasn't really worked. What has worked though is the fact that both RBI which governs the banks and National Housing Banks which governs the housing finance companies they have banned prepayment charges on floating rate loans.

At least if you are an aware consumer, you know what rate you are paying and you are aware that your bank or your housing finance company is giving lower rates to its new consumers then at least if you threaten to switch or go over to another lender, the chances are that your existing lender itself will drop the rate for you or you could get a much better rate in the market.

The good thing that has happened over the last year is that at least aware consumers are able to benefit from the fact that there are no prepayment charges. So that is a very positive development that has happened but you still need to be aware that you have been overcharged. Second you need to be a good consumer. If you have not paid on time the new lender is not going to give you the loan.

Q: There was some news that State Bank of India (SBI) has waived off the guarantor for shifting of home loans. Can you throw some light on that?

A: Guarantor is a person who will make sure that if the main borrower does not pay, the guarantor will pay. Now guarantors will never regulatory. This is something that is required for credit enhancement that is the bank feels more comfortable in a particular case.

Q: This is only in the case of shifting of a loan. The loan is getting shifted either from another bank or from another scheme. In the interregnum they wanted to be guaranteed till the papers come to them. So it’s something I think to attract people to shift their loans to SBI.

A: Shifting of a loan is administratively cumbersome and clearly despite the great rates that SBI offers to new customers, they were not able to do shifting because of this kind of a requirement. Having realized trhis, they have decided to waive it because that is the only way those transactions will happen. Otherwise those transactions will not happen despite them making so much sense, they wanted to be guaranteed till the papers come to them. So this is  something to attract people to shift their loans to SBI.

Caller Q: I have purchased an apartment which is under construction and the total cost of flat works out to be around Rs 30 lakh for which I have already made a down payment of Rs 8.5 lakh but for remaining Rs 21.5 lakh, I have taken a loan for which I have entered into a tripartite agreement with the bank and the builder. As per the agreement I was supposed to make the payments to the builder as and when he completes the work but bank has released the entire Rs 21.5 lakh. I asked the bank as to how they released so much of amount when the rule and the agreement mentioned that only when the construction is over I need to pay the amount. After speaking to the builder he has apologized and he has given me an option to refund the extra amount which he has withdrawn from the bank and the other option he has given me is of interest payment of 7.75, which is equivalent to the bank fixed deposit (FD) for 45 days. So, should I take back the cash from the builder or I should accept an interest payment of 7.75 from the builder?

A: Clearly, it is the bank that has not done its duty here. They had no business releasing this. You are paying an interest rate to the bank; so there is no earthly reason for you to accept an interest rate that is less than that. You just tell the builder to give back the money or you put pressure on the bank. File a written complaint with the bank and the bank will ensure that the builder gives you that interest because it is the bank who had not fulfilled its responsibility.

Make sure you file a written complaint. If they don’t respond, or if the builder does not respond to the pressure from the bank, just pile on the pressure by filing a complaint with the Nodal officer of the bank. You can be hundred percent sure that the bank will put pressure on the builder to completely compensate you for 10.25 interest payment but this 7.75 business is not right. He is just testing how far you will take the complaint. Please file a written complaint, you will 100 percent get relief.