The Reserve Bank of India recently slashed its repo or lending rate by 50 base points. This means that the commercial banks in India can now lend at cheaper interest rates. This affect consumers like you who have taken a loan.
It could turn out especially beneficial if you've been paying a higher interest rate. You can now switch to lenders offering the same loans at slashed interest rates, simply by asking for a Home Loan transfer.
Discover the ways in which you can use this rate slash to enhance benefits on your existing Home Loan.
How Do I Make a Switch?
Many banks have already started to lower their interest rates on lending, and therefore, the first step for you would be to approach your own bank and negotiate for a lower interest rate on the amount that you have borrowed.
If the banker agrees, and lowers your interest rate from (say) 11.75% per annum to 10.25% per annum, the savings you accrue would be much higher than what you pay now. If the negotiation however, does not work, you can approach a new lender who offers a lower rate and boost up your savings in the coming years. Making a switch would also ensure that the amount you pay in the form of EMI on your Home Loan also gets reduced.
You can apply for Home Loan transfer, through which the balance of your Home Loan will be transferred to the new lending bank.
The important thing to remember here is that a switch is not necessary just because the interest rates have lowered. You have to consider how much you've already spent towards your existing loan. If you have taken a fresh loan, then it is better to make a switch at the beginning.
This way, it is easier for you to accrue any benefits that may arise due to rate cuts. Also, no matter how little you can save through a switch, it is always a good idea to execute-for your long-term savings goals.
What Do I Keep in Mind Before Making a Switch?
Before you make the switch for your Home Loan, it is important to analyze the cost and effects of the lowered interest rate on you as a consumer.
If your bank is ready to negotiate and lower interest rates, you can stick with your existing Home Loan. In that case, you have to take into consideration the amount you have invested in the Home Loan. This would require you to calculate overall benefit that you may be gaining. For instance: if you have taken a loan of Rs.50,000 on an interest rate of 11.50%, but negotiate the same interest rate down to 10.25%, you can save over several lakhs.
It also makes a difference if you check with the bank before hand about the interest rates difference offered to men and women, since many banks offer female-friendly scheme. In such a scenario, a shift may not be needed at all.
However, if your existing bank does not reduce the rates, and you find yourself paying a higher interest rate even though you think that better opportunities exist, then you must make a switch. The ultimate idea is to use the decreasing interest rates to your advantage.
Will Using this Opportunity Help me at all?
Since Home Loans usually involve a large sum of money, reaping benefits of rate cuts seems a good opportunity. With the interest rates lowered, there are great chances of either your EMI or the tenure of the loan getting reduced. A Home Loan switch would be beneficial if you still have a long term to go, rather than when most of the period is lapsed.
It is similar to applying for a new loan all over again, so you will have to consider all the factors before making a switch.
For the most part, the repo rate cuts remain consistent; a lowering of the base rate is seen as a great opportunity for the lending banks. Commercial banks mobilize a large amount of money in the market, and the slashing of the interest rates would ensure that more people can borrow loans, equally benefiting themselves as well as the banks.
More than anything, if switching your Home Loan seems like a big task, negotiating for a lower rate is a surer way to earn benefits over a long period of time. The rate cuts may also help you to reassess your saving capacity, and help you understand how much you are actually investing on your Home Loan.
Some Key Points to Remember
- Before switching your Home Loan or transferring it to another bank, calculate and analyze the cost benefits and try to negotiate the interest rate with your existing bank for the term of the loan.
- If your current scheme offers you a better long term saving plan, stick with it.
- Applying for a switch is like applying for a new loan; the sooner you can transfer the home loan , the better the opportunities are to save more money.
- Do your research well, analyze your savings, and the expenses you mete out for the payment of interest; then transfer your Home Loan.
Rate cuts mostly benefit both the borrower and the lender. Make your switch, keeping in mind the concepts you just read about; this way, you'll enjoy maximum benefits.