As widely anticipated, since the beginning of the year 2008, the interest rates on home loans may witness revision…and the belief is firmed with the announcements of the CRR increase in credit policy by RBI on April 29.
So if you were looking forward to buying your home by using a home loan, you may need to think again! The brakes have been put on the interest rate cuts in the wake of Reserve Bank of India (RBI) hiking the CRR by 0.25% to 8.25 per cent. Although general market consensus seem to be that interest rates will not increase, we feel that given the inflation pressure, interest rate may have no choice but to increase.
So we can expect banks revising upwards in the range of 0.25 per cent-0.50 per cent for home loans over Rs. 30 lakh. (Now that slab increased to Rs. 30 lakh, it will be charged at par with those below Rs. 20 lakh.) So the borrowers in that bracket may be spared (Rs. 20-30 lakhs) but below that interest rates may move northwards a bit.
Most home loan borrowers in the last 5 years have taken floating rate loans and banks have revised the interest rates on these loans. Like many home buyers, who thought they were fortunate to have a floating rate loan at 7 per cent in 2003, are now finding that their sense of “luck” was misplaced. Banks are now charging them around 11 – 11.50 per cent interest rate (Though new borrowers are getting around 10.50%). If the loan was for Rs. 10 lakh and the original tenure of the loan was 20 years, the increased rates would change the EMI from Rs. 7753 to more or if one was to keep the EMI amount same, then the tenure would increase by more than 10 years. Typically, banks would let the tenure increase to a maximum of 25 years.
Now the time has come to talk tough to your lender, and for that your repayment track record has to be spotless. Now you can request your lender to offer you the same rate which is being offered to their own new customers. However your lender may charge a small fee for shifting your loan to a lower rate.
In case your lender seems reluctant, then you can certainly consider the other option of shifting the home loan to another lender offering lesser rates.
But keep in mind that shifting to a new lender may make you incur costs like- prepayment fee payable to existing lender and processing fee payable to new lender, besides administrative hassles such as getting fresh NOC from the society or builder, whichever is applicable in your case. Sometimes the builder will charge a fee for issuing this NOC. So if your existing lender is willing to provide the lower rate it is better to stick to him.
As there is a time gap between switching from one lender to another, you will be required to furnish a letter from your existing lender stating that they will release the documents within a stipulated time frame after full payment is made and also specifying that amount that will be required as full and final payment. This letter will enable the new lender to consider releasing the payment directly to your existing lender.