It’s raining concessional home loan interest rates ahead of March 31, the financial year-end. Home loan rates that were already at 15-year lows, have tumbled further.
State Bank of India (SBI) slashed its lowest home loan rate from 6.8 percent to 6.7 percent for home loans of up to Rs 75 lakh on March 1. This reduction is applicable to salaried home loan borrowers with a credit score of over 800. You will have to shell out 10 basis points more if your CIBIL score is between 751-800. For loan amounts between Rs 75 lakh and Rs 5 crore, the lowest rate charged to most credit-worthy borrowers is 6.75 percent. Women will get an additional discount of five basis points, while non-salaried borrowers will be charged 10 bps more. The bank has also decided to waive processing charges. These offers will be available only till March 31.
Kotak Mahindra Bank, which was offering interest rates of 6.75 percent so far, has reduced home loan rates further to 6.65 percent. “The rate cut benefits will be offered to new borrowers. Existing clients may not benefit,” says Vipul Patel, Founder, Mortgageworld.in.
Home loan borrowers have witnessed good times since March 2020, with interest rates falling to record lows following the Reserve Bank of India’s (RBI) cumulative repo rate cut of 115 basis points. Banks and housing finance companies sweetened the deals further by coming up with concessional home loan offers during the festive season in 2020. Real estate developers, too, dangled discounts, and some state governments slashed stamp duties.
If you intend to buy a house for self-use, this is the right time to do so. And, if you are an existing borrower, your choice should be relatively easier, as the offers are meant to attract existing borrowers of other banks too.
As Moneycontrol had pointed out earlier, it makes sense to switch lenders, especially if your loan is linked to the older marginal cost of funds-based lending rate (MCLR) or Base Rate methods. “You must consider switching even if the difference between your existing rate and the other banks’ new rates is just 30 basis points and your loan tenure is 20-30 years,” explains Patel. However, if the loan tenure is, say, 12-15 years, a difference of 25-30 bps may not reduce the tenure – and therefore the number of EMIs – substantially, he reckons. If the difference is 50 basis points, there is no reason to think twice.
Choose balance transfer for hefty savings
So, if new loan offers are around 50 basis points cheaper than your current loans, you must be moving to another lender soon. Let’s suppose you took a Rs 75-lakh loan with an original tenure of 20 years. Of this, three years may have elapsed. Assume currently you pay 8 percent a year. If you decide to switch to another lender offering 7.5 percent, you will save Rs 8.15 lakh over the balance tenure and shave 13 EMIs off your schedule.
All new retail loans approved after October 1, 2019 have to be linked to an external benchmark, which is the RBI’s repo rate for most banks. It offers greater transparency and higher degree of predictability. For example, when the central bank reduced the repo rate cumulatively by 115 basis points in March and May, all banks had to pass on the entire rate cut to their repo-linked loan borrowers. Earlier, most existing borrowers’ grouse was that while banks were quick to increase rates in line with the policy rates, they were not as prompt when it came to reducing interest rates. Now, when there is a repo rate cut, lenders have no choice but to pass on the entire benefit to all their borrowers.
While housing finance companies do not have to adhere to the external benchmarking regime, competition is bound to force them to offer comparable rates. If they do not reduce interest rates in line with others, however, you can consider transferring your loan to another lender. However, it is best to first negotiate with the existing lender.
Negotiate with your existing bank
If you change your lender now, your new bank will regard you as a fresh borrower and hence pass on the benefits of reduced home loan rates, and you be eligible for the concessional rates and fees. “Having said that, our advice is to write to existing lenders to amend and adjust the rates offered to them. In case this negotiation fails, you can go for the balance transfer facility to get the maximum benefit out of the festive benefit schemes,” adds Patel.
Asking your existing lender for a better rate will not only save you the trouble of sifting through cumbersome documentation, but also the charges, as this switch will be internal. “Moving your loan to a lower interest in the early years of the loan will reduce your interest burden in a very big way. However, refinancing comes with its own costs, including processing, mortgage deed and legal fees, etc. You need to make sure that the cost of refinancing your home loan does not make it more expensive than your existing loan,” says Adhil Shetty, CEO, Bankbazaar.com