When there is a hike in the interest rates, there are certain quick steps you need to take.
- Negotiate the rate :
When Remit Malhotra’s bank raised the interest rate on his loan from 9% to 12%, he wanted to refinance his loan. Rather than lose him to another bank, his bank offered to lower the rate if he paid a refinancing fee of 0.1% of the outstanding amount. So, by paying Rs 3,300, he was able to bring down the interest rate on his loan to 10.5%.
But, this option may not be applicable in all situations or to all borrowers. You should consider all the hidden costs involved when coming to the decision of refinancing the loan.
- Refinance the loan:
If your bank is charging you the rate, which is more than the market rate, then you need to think about changing your lender. Most borrowers are just not ready to go through the same procedure for applying for a loan and are hesitant to change their lender. Obviously, the lender will impose a prepayment penalty of 2-3% on you but it will prove comparatively better in the long run.
- Make partial/full prepayments:
In cases where a borrower is involved in a home loan, with the hike in the interest rates, the loan tenor is likely to increase from 20 to 40 years, if one is considering the same EMI payments. Banks will not wait for such a long duration. Either you will be asked to prepay a part of your loan amount or increase the amount for your EMIs.
- Increase the EMI:
During interest hikes, it is better if you as a borrower can step up and increase the amounts you pay for your EMIs. Even a substantial increase in the EMI amount can have a good impact on your loan tenor.