Home-buyers have multiple choices this festive season. Top banks have reduced rates on new home loans, including balance transfers. 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 attract existing borrowers of other banks to switch, too.
Home loan borrowers have witnessed good times since March 2020, with interest rates falling to 15-year lows, following the Reserve Bank of India’s (RBI’s) cumulative repo rate cut of 115 basis points. In the last 18 months, banks and housing finance companies sweetened the deals further by offering concessional home loan during the festive season in 2020 and ahead of March 31, 2021, the financial year-end. This year again, ahead of the festive season, leading banks have announced home loan festive offers. Here’s what borrowers should do to make the most of it.
What are the home loan festive offers from banks?
Leading private and public sector banks are competing to offer lower interest rates and are waiving processing fees to woo customers. For instance, State Bank of India (SBI) has announced that borrowers with a credit score above 800 will now get home loans at an interest rate of 6.7 percent, irrespective of the loan amount.
It has waived processing fees and premium on interest charged (15 bps) to non-salaried borrowers. Bank of Baroda (BOB) has also slashed home loan rates to 6.70 percent from 6.75 percent and waived processing fees. Housing Development Finance Corporation (HDFC) offers loans at interest rates starting from 6.7 percent. This offer is available till October 31, 2021. Kotak Mahindra Bank has been offering the home loan at the lowest interest rate since November last year. The bank slashed home loan rates by 15 bps to 6.50 percent. It’s a limited period offer, available for two months, and for all loan amounts, depending on the borrower’s credit profile.
“This year, the focus of the banks is to attract balance transfer customers. They are coming with such festive offers to target customers with good credit profile of other banks into their own books,” says Atul Monga, Co-founder and CEO of BASIC Home Loan.
However, Vipul Patel, Founder of Mortgageworld, a loan consultancy firm, has a contradictory view on festive offers being announced. He says, “There is nothing much to cheer in the festive home loan offers for borrowers. Banks are already giving home loans at festive rates announced. For instance, SBI and BOB were already giving home loans at similar pricing after hard negotiations.”
I already have a home loan. How do I benefit from these festive offers?
Festive offers from banks are typically for new home loan borrowers. However, these offers are extended to borrowers who are refinancing their loans. So, this is a good time for existing borrowers to re-evaluate their ongoing home loan and switch.
Refinancing has a lot of benefits if done right. “Moving your loan to a lower interest in the early years of the loan will reduce your interest burden enormously,” says Adhil Shetty, CEO of BankBazaar.com. However, refinancing comes with its own costs, including foreclosure charges in the case of a fixed loan, processing fees, and other application charges, mortgage deed fee, 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. So, unless you get a good interest rate, you need to think hard about switching your loan,” says Shetty.
When should I choose to switch my home loan for hefty savings?
If the new home loan offers are around 25-50 basis points cheaper than your current rate, there is no reason to delay home loan refinancing.
For instance, assume you took a Rs 50-lakh home loan with an original tenure of 20 years. Let the current interest be 7 percent a year. If you decide to switch to another lender who is offering 6.5 percent, you will save Rs 6.96 lakh over the tenor and save 18 EMIs (refer to illustration table).
“You should do your math and switch even if the difference is only 25-35 basis points,” says Patel. Anything above 25 basis points makes commercial sense with a long-term view. He adds, if your remaining loan tenor is 5-7 years, then it’s not beneficial to switch.
Talk to your bank and keep the documents ready for a switch in case you don’t get a deal. “There are notorious banks that deliberately delay the application process by not giving the documents (foreclosure letter, property documents, etc.). So, the customer can’t complete the balance transfer process in the specified time period,” says Monga.
What is the best method to negotiate successfully?
As a consumer, it is your right to ask for better pricing. You should keep negotiating with your banker for better pricing and terms at least once in a year.
In festive offers from banks on home loans, besides reducing the interest rate, you can extend the loan tenor and decrease the EMI as well, if your cash inflow got affected because of pandemic. “You should negotiate with a current lender for better terms with festive offers. In case this negotiation fails, you can go for the balance transfer facility to get the maximum benefit out of the festive benefit offers,” adds Patel.
“Your lender would negotiate if you have an improved credit history and score. So, the best bargaining chip is a good score,” says Shetty.