Wait for some weeks, as other banks
and hosunig finance companies are likely to follow suit. You can also negotiate
for a lower rate before deciding on a change of bankers.
Though SBI (State Bank of India) has
cut rates on housing loans by 0. 25% 0.85% across tenures, it’s a bit early for
housing loan borrowers to switch their lender. Wait for about one or two
months, as other lenders are likely to follow suit.
According to experts, 'Housing loan
borrowers can also use SBI’s example to bargain with their respective lender
for better rates. It is most likely that their lenders would agree, as it is in
their interest to retain a borrower with a good repaying record."
For housing loans up to Rs. 30 lakh,
SBI has reduced the interest rate from 10.75% to 10.25% and to 10.4% for loans
above Rs. 30 lakh.
Earlier, for loans between Rs. 30 lakh
and Rs. 75 lakh the interest rate was 11% and for loans above Rs. 75 lakh, it
was 11.25%. The revised EMI (Equated Monthly Instalment) per Rs. 100,000 at the
rate of 10.25% for a loan tenure of 30 years would be Rs. 897, against the
prevailing EMI of Rs. 934, said an SBI statement.
The waiver of the prepayment penalty
for floating rate housing loans has made switching lenders to take advantage of
lower rates an attractive proposition for borrowers. But that should not be the
only criteria for switching your lender. The difference between old and new
rates should be at least 0.75% to 1% for the switch to make commercial sense,
as the procedure is cumbersome.
Mr. Harsh Roongta, CEO, Apnapaisa.com,
said, ''Other lenders might also cut rates and it is best to wait for sometime.
The biggest advantage is that there is no prepayment penalty on floating rate
loans. However, there will be a nominal processing fee & a small fee on
creation of security.
Even if borrowers are getting the new
loan at 0.50% less and if only 2 years are left for repayment, switching to a
new lender will help, as the rates offered by SBI are very competitive"
Assume, for instance, a borrower took
a floating rate housing loan of Rs. 80 lakh, at an interest rate of 12% and
tenure of 30 years. The home loan has been repaid for 5 years. The old EMI is
Rs. 82,289 and the amount due is Rs. 78,13,057. If the loan is reset at 10.5%,
the new EMI is Rs. 76,000. The difference works out to Rs. 6,000.
Mr. Vipul Patel, Home
Loan Advisors (HLA), an independent mortgage advisory company, said, ''Just one
bank (SBI) has cut their lending rates on housing loan. But, it’s the India's
largest bank . Also, the competition is so steep, that other banks will have to
follow them. So, if you can wait a little while, it’s possible that your own
lender might cut rates as well, that too for existing borrowers."
Mr. Vipul Patel also said, ''The home
loan customers to use SBI’s rates to bargain for a better deal with their
respective lender. If the lender does not agree to lower the rates, then the
borrower must switch to a new one. Even if your bank or housing finance
companies does not bring down rates to 10.25% (SBI’s charge), they might at
least reduce it to 10.5% or 10.75%. If your current rates are 11% or above,
even this much of a reduction will help”
While switching the home loan,
borrowers should try to keep the monthly repayment constant or increase it, so
that the period of the loan does not increase.
Mr. Kiran Telang,
Chief Financial Officer, ABT Capital Advisors, a Mumbai-based financial
planning company, said, “Banks do not want to lose good borrowers who repay
loans on time. So, if you know you have a good credit history, make the most of
it.
Mr. Kiran Telang also
said, '' Interest rate is an important parameter while deciding to switch.
Lower the interest rate, lower the total cost of your loan. Hence more sizeable
will be your savings. To make a substantial amount of saving you will need to
ensure that the new lender offers you minimum 1 % to 1.5% lower rate. That way,
you would be able to save larger sum on your loan.
Mr. Suresh Sadagopan,
Certified Financial Planner, Ladder7 Financial Advisories said, ''Do not just
go by the interest rate as a deciding factor. It is not the only deciding
parameter. Along with the interest rate of the new lender, you should also keep
in mind the processing fee that is charged by the new lender. The processing
fee varies from lender to lender. It could be anywhere between 1% to 1.5% per year
of the loan outstanding amount to a few thousand rupees."
Mr. Telang added,
“Few lenders charge a fixed processing fee of Rs. 5000 to Rs. 10,000 and
switching may work in such a case. For
instance, when we ran numbers for a loan outstanding of Rs. 50lakh, with rate of 11.75 per cent for 15
years, switching the loan at an 11 per cent without processing fee made
slightly better sense than switching to a lower rate of 10.80%, with a
processing fee as 2% of total outstanding loan amount. Keep in mind, RBI
(Reserve Bank of India) and NHB (National Housing Board) has done away with
prepayment charges on floating rate loan. So, as far as prepayment charges go,
you need not worry. Also keep an eye on any hidden charges like legal fees and
like with the new lender.
Mr. Sadagopan added,
''EMI is made of 2 components. First is the principal component & second is
the interest part. “As a thumb rule, if
you switch at the beginning of the loan tenor, you pay a higher amount towards
the interest component, while towards the end of the loan, you pay higher
amount toward the principal part. You get a better deal when you switch the
initial years of the loan. For instance, on an Rs. 70 lakh loan at 11 per cent
rate of interest over a tenor of 15 years, your EMI would be Rs. 68,196. Here
the interest component of the EMI in the first 3 years would be in the range of
Rs. 55,000 to Rs. 37,601, but in the last 3 years, the interest part of the
same EMI would be in the range of Rs. 10,300 to as low as Rs. 619. In fact, if
you are stuck at a very high rate, you could still look at a switch even in the
last few years of the loan. Some borrowers are stuck at 15 per cent and even if
they are in the last few years of their loan, it still makes sense to switch to
a lower rate. They would be also to save a substantial amount, if they get a
lower rate.”
HOME LOAN RATES (%)
Bank Name Rs 20 lakh Rs 30 lakh Rs 50 lakh
SBI 10.25 10.25 10.40
PNB HF 10.75 10.75 11.00
HDFC 10.75 10.75 11.00
ICICI BANK 10.50 10.50 11.00
Note: The housing loan rates are indicative rates, which may change according to the credit profile of the customer. Source: www.apnapaisa.com
Src: BS and ET
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