Home loan rates have fallen to record low levels. The State Bank of India offers a home loan rate of 6.7 percent. Kotak Mahindra Bank offers 6.65 percent. In reality, not everyone gets to enjoy such low home rates.
In today’s podcast episode of Simply Save, Vipul Patel, founder of Mortgageworld.in tells us that home loan rates are not the rack rates that banks and non-banking finance firms. These rates are linked to external benchmark rates. When this external rate goes up, your home loan rate that is linked to it, also goes up. And vice versa.
Further, your bank also has a credit score mark-up. Patel explains that a lot also depends on your credit score. If your credit score is good, then the rate is marked up marginally. But if your credit score is bad, then your home loan rate is much higher than the rack rate that is on offer. Your credit score is, therefore, an important factor that determines how low an interest rates you would actually get. Patel explains, in this podcast, that different banks rely on different credit bureaus for your credit score. Some banks also take an average of scores given by two more such credit bureaus to even out any extremities. Hence, Patel says, it’s important to keep a track of your credit score if you envisage taking a home loan in future.
But what if you already have a home loan? Does it make sense then to switch to a bank that offers you a lower home loan rate? Patel says this depends on your tenure of your home loan and how much difference in terms of benefit you stand to get from the new bank. Firstly, negotiate with your existing bank. If your existing bank is willing to lower the rate for you in order to retain you, then it’s the best solution. You’re saved the trouble of moving banks. But if your bank isn’t much willing to budge, then check the difference in rates between your existing bank and what you are getting elsewhere. For shorter tenures, if the difference is huge, like one percent point, then it makes sense to move your banks. But for longer tenures, like say 20-30 years’ loan, if the difference is even half a percent point, then it’s worth to move because you will save considerably in terms of equated monthly instalments (EMI), says Patel.