The Reserve Bank of India recently cut its repo, or lending rate, by 50 basis points. This means that commercial banks in India can now lend at lower interest rates. This affects consumers like you who have taken out a loan.
This could be especially beneficial if you have been paying a higher interest rate. Now you can switch to lenders that offer the same loans at reduced interest rates, simply by requesting a home loan transfer.
Find out ways you can use this rate reduction to improve the benefits of your existing home loan.
How do I make a change?
Many banks have already started lowering their interest rates on loans and therefore the first step for you would be to approach your own bank and negotiate a lower interest rate on the amount you have borrowed.
If the banker agrees and reduces your interest rate from (say) 11.75% per year to 10.25% per year, the savings you accumulated would be much higher than what you pay now. However, if the negotiation doesn’t work out, you can approach a new lender who offers a lower rate and build your savings for years to come. Making a change would also ensure that the amount he pays in the form of EMI on his home loan is also reduced.
You can request the Mortgage Loan transfer, through which the balance of your Mortgage Loan will be transferred to the new lending bank.
The important thing to remember here is that a change is not necessary just because interest rates have gone down. You should consider how much you have already spent on your existing loan. If you have taken a new loan, then it is better to make a change at the beginning.
In this way, it is easier for you to increase the benefits that may arise due to rate cuts. Also, no matter how little you may be able to save through a switch, it’s always a good idea to execute it for your long-term savings goals.
What should I keep in mind before making a change?
Before making the change for your home loan, it is important to consider the cost and effects of the lower interest rate for you as a consumer.
If your bank is ready to negotiate and lower interest rates, you can continue with your existing home loan. In this case, you must take into account the amount you have invested in the Housing Loan. This would require you to calculate the overall profit you may be making. For example: If you have taken a loan of Rs 50,000 with an interest rate of 11.50%, but you negotiate the same interest rate down to 10.25%, you can save several thousand Rs.
It also makes a difference if you check with the bank beforehand about the difference in interest rates offered to men and women, as many banks offer women-friendly schemes. In such a scenario, a change may not be needed at all.
However, if your current bank won’t lower rates and you find yourself paying a higher interest rate even though you think there are better opportunities, then you should make a change. The bottom line is to use falling interest rates to your advantage.
Will using this opportunity help me?
Since home loans typically involve a large sum of money, reaping the benefits of rate cuts seems like a good chance. With reduced interest rates, chances are high that your EMI or loan tenure will be reduced. A home loan switch would be beneficial if you still have a long term left, rather than when most of the term is due.
It’s similar to applying for a new loan again, so you’ll need to consider all factors before making a change.
For the most part, repo rate cuts are holding steady; a base rate reduction is seen as a great opportunity for lending banks. Commercial banks move a lot of money in the market, and drastically lowering interest rates would ensure that more people can borrow, benefiting them and the banks alike.
More than anything, if changing your home loan seems like a big task, negotiating a lower rate is a surefire way to profit over a long period of time. Rate cuts can also help you reassess your ability to save and help you understand how much you’re really spending on your home loan.
Some key points to remember
- Before changing your Mortgage Loan or transferring it to another bank, calculate and analyze the costs-benefits and try to negotiate the interest rate with your current bank for the term of the loan.
- If your current scheme offers you a better long-term savings plan, stick with it.
- Applying for a change is like applying for a new loan; the sooner you can transfer the home loan, the better the opportunities to save more money.
- Find out well, analyze your savings and the expenses you make for the payment of interest; then transfer your home loan.
Rate cuts primarily benefit both the borrower and the lender. Make your change, keeping in mind the concepts you just read; In this way, you will enjoy the maximum benefits.