Every day you see news about Home Loan rates being cut. But yours is still high. Is there any way you can get lower rates? Of course! Here’s how.
Home Loan rates have fallen below the 8.5% levels. Is yours still over 9%? Uh-oh! You don’t know the reasons? There might be several reasons why your Home Loan rate hasn’t fallen. We will tell you about them. Now, the question is, can you lower those rates so that you can pay lower interest on your loan? Of course, you can! But that will depend on why your Home Loan rate has still not fallen. Here are the reasons why your loan rate is high and how to reduce them.
Your Home Loan is linked to base rate
One of the reasons could be that your Home Loan rate is linked to bank’s base rate and not the Marginal Cost of Lending Rate (MCLR). Base rates are not reset as often as the MCLR. This could why your loan rate is still high.
Additional reading: Fixed Or Floating Rate: Which Is Ideal For Your Home Loan Now?
What to do?
Consider switching to an MCLR-based Home Loan. Only banks offer MCLR-based loans while Non-Banking Finance Companies have Primer Lending Rate (PLR) which is similar to base rate. Even though MCLR-based loans are not exactly the purest form of floating-rate loans, they will be reset by banks more often than base-rate loans. As soon as the MCLR is reset on the reset date, you can enjoy lower interest rates on your loan.
How does the reset happen? On the MCLR reset date, the interest rates in the country as on that date will be used for resetting. Also, MCLR is usually reset as soon as the Reserve Bank of India (RBI) changes the interest rates. Banks will charge you for converting your loan to an MCLR-based loan. This could be anywhere between 0.2%-0.5% of your outstanding loan amount.
Your Home Loan rate is linked to MCLR
You have an MCLR-based loan but your loan rate doesn’t seem to have fallen. What could the reason be? There are two reasons for this. One is that your lender hasn’t yet reset MCLR rates and the other could be that your lender requires you to place a request to reset the loan rate. Most often, lenders won’t lower the interest rates for loans as soon as MCLR is reset. Read the terms and conditions of your Home Loan to see if this is the case. This, of course, doesn’t apply when the rates are going up.
Additional Reading: MCLR Lending Rates Make Home Loans Cheap: Here Is What This Means For You
What to do?
If the MCLR is yet to be reset, you will have to wait. If you have to place a request, you will have to request your lender to give you the low rates in writing. You might have to visit the office of your lender to place this request. Note that lenders charge a one-time conversion fee to do this. Some lenders might charge you every time you ask for lower rates.
Your lender is not providing the best rates
Sometimes your lender might just not provide you with lower rates either because you have a fixed-rate loan and are not eligible for lower rates or because your lender has no plans to lower rates anytime in the future.
What to do?
The best way forward would be to choose MCLR-based loan providers with the shortest possible MCLR reset dates. While some banks reset MCLR once in 12 months, there are banks that reset MCLR on a half-yearly basis. The shorter the MCLR reset date, the better for you as long as the interest rate is falling.
Additional Reading: Home Loan Balance Transfer Or Refinancing: Which Is Better?
But before you switch to another lender, you will need to do some cost-benefit analysis. This will tell you whether it makes sense to actually switch to a new lender. For this, you will have to calculate the cost of the loan transfer and the new EMI to find out whether it is worth all that hassle. Loan costs will include processing fees, stamp duty charges, legal fees and valuation fees, among others. How significant could this amount be? Sometimes this can be as much as 5% of your loan amount. So, check how much you will save in interest by switching to another lender before you decide to switch.
Home Loan rates now are as low as 8.3%. So, go ahead and get that Home Loan right away. Don’t know how to go about it? We will help you compare across lenders to get the loan that is right for you.