Homebuyers will have many options to choose from this holiday season. Property developers are offering discounts, some state governments have lowered stamp taxes, and banks are competing for lower interest rates. Interest rates have been the lowest in 15 years. For example, Kotak Mahindra Bank offers mortgage rates starting at 6.75%, while Bank of Baroda rates start at 6.85%. The State Bank of India (SBI) has announced a 25 basis point grant for loans over Rs 75 lakh to clients based on their credit scores when applying through its YONO app.
In fact, if you’re planning to buy a home for personal use and you’re fairly confident about your job prospects, this seems like the best time to take the plunge.
New home buyers may need to consider several parameters when buying a home and applying for a new loan. However, if you are already a borrower, your choice should be relatively simple. The offers are also aimed at attracting existing borrowers from other banks.
You will need to make the switch, especially if your loan is tied to the above marginal cost of the fund-based lending rate (MCLR) or the base rate.
If the new loan offers are approximately 50 basis points cheaper than your current loan, there is no reason to delay refinancing the mortgage.
Let’s say you have taken out a loan of Rs 75 lakh with an initial term of 20 years. Maybe three years have passed. For example, let’s say you currently pay 8% interest per year. If you decide to switch to another lender offering 7.5 percent, you will save 8.15 lakh over the life of the credit and remove 13 EMI from your program.
“Even if the difference is only 25 to 35 basis points, it makes sense to switch,” says Vipul Patel, founder of the Mortgageworld, a credit counseling firm. Carry out a cost benefit analysis beforehand. One percentage point corresponds to 100 basis points.
Additionally, several banks have lowered their processing fees, and under no circumstances will you have to pay foreclosure fees. For example, SBI does not charge processing fees if you buy a home from the list of bank-approved projects. “The specials are plus a discount and a waiver of processing fees. The rate cut is small, typically 5 basis points. These offers vary from lender to lender, and the reduction mechanism is lender-specific, ”said Adhil Shetty, founder, and CEO of Bankbazaar.com.
All new retail loans approved after October 1, 2019, must be tied to an external benchmark, which for most banks is the Reserve Bank of India (RBI) repurchase rate. It offers more transparency and a higher level of predictability. When the central bank lowered the repurchase rate cumulatively by 115 basis points in March and May, all banks had to pass on the full rate reduction to their repurchase borrowers. Previously, most existing borrowers complained that while banks raised interest rates rapidly in line with policy rates, they did not lower them as quickly. Now, if buyback rates drop, lenders have no choice but to transfer all of the proceeds to all of their borrowers.
If real estate finance companies are not required to adhere to the external benchmarking regime, competition can only compel them to offer comparable interest rates. If they don’t get market interest rates, be sure to transfer your loan to another lender. However, it is best to negotiate with the existing lender first.
Even if your loan is tied to the RLLR, check out other lenders’ holiday offers. “All the holiday offers are aimed at new customers and do not influence existing customers. Generally, the loan breakdown remains the same for the life of the loan, unless the borrower’s credit history has changed significantly, ”Shetty says. The margin on a loan, the difference between the final loan rate and the repurchase rate (or the external reference to which your bank has linked your loan rate), has remained the same for existing borrowers since the annuity rate has not changed now. But banks have lowered their spreads for new borrowers. In accordance with RBI regulations, the margin specified in your loan agreement will remain constant for three years.
For example, the Bank of Baroda has reduced its spread for new borrowers by 15 basis points. Since the buyback rate has not been lowered, the margin for existing borrowers will remain unchanged for at least three years after the loan agreement is signed. “Some banks have reduced their credit and risk allocation during the Christmas season to provide benefits to new banking consumers. The margin for existing clients is contractually established at the time the loan is made, ”says Patel.
If you switch lender now, your new bank will consider you a new borrower and thus pass on the benefits of lower mortgage rates, and you will be entitled to discounted rates and fees. “However, we recommend writing to existing lenders to change and adjust the interest rates they offer. If that negotiation fails, you can opt for the balance transfer feature to take full advantage of the holiday benefit plans, ”adds Patel.
If you ask your current lender for a cheaper rate, you will not only save yourself the hassle of searching through cumbersome documentation, but also the costs, as this change is made in-house. “If you cut your loan to a lower rate in the first few years of the loan, the interest burden will be greatly reduced. However, refinancing has its own cost, including processing, mortgage deed, and legal costs, etc. You need to make sure that the cost of refinancing your home loan is not more expensive than the existing loan, ”says Shetty.