The Reserve Bank of India recently cut its repo or lending rate by 50 basis points. This means that commercial banks in India can now lend at cheaper interest rates. This affects consumers like you who have taken loans.
It can be especially beneficial if you’re paying a higher interest rate. You can now switch to lenders who offer the same loans at low-interest rates by simply requesting a Home Loan transfer.
Discover how you can use this rate discount to increase the benefits on your existing Home Loan.
How Can I Switch?
Many banks have started lowering interest rates when lending, so the first step for you would be to contact your own bank and negotiate a lower interest rate for the amount you borrow.
If the banker agrees and lowers your interest rate (for example) from 11.75% per annum to 10.25% per annum, the savings you will accrue will be much higher than what you pay now. But if bargaining doesn’t work, you can turn to a new lender who offers a lower rate and increases your savings for years to come. Making a switch will also reduce the amount you pay in the form of EMI on your Home Loan.
You can apply for a Housing Loan transfer where the balance of your Housing Loan will be transferred to the new lending bank.
The point that should not be forgotten here is that there is no need for a transition just because the interest rates have fallen. You should consider how much you spend on your current loan. If you just got a loan, it’s better to make a transition at the beginning.
In this way, you can accrue all kinds of benefits that may arise from interest discounts more easily. Also, no matter how little you might save through a switch, it’s always a good idea to run it for your long-term savings goals.
What Should I Keep in Mind Before I Switch?
Before you switch for your Home Loan, it’s important to analyze the cost and effects of falling interest rates on you as a consumer.
If your bank is ready to negotiate and lower interest rates, you can stick with your existing Home Loan. In this case, you should consider the amount you have invested in the Housing Loan. This requires you to calculate the overall benefit you can gain. For example: If you took a loan of Rs 50,000 at 11.50% interest rate, but negotiated the same interest rate up to 10.25%, you could save several hundred thousand.
It also makes a difference if you check with the bank ahead of time the difference in interest rates available to men and women, as many banks offer women-friendly programs. In such a scenario, a shift may not be necessary at all.
However, if your current bank isn’t lowering interest rates and you find yourself paying a higher rate even though you think there are better opportunities, then you should make a switch. The ultimate idea is to use falling interest rates in your favor.
Will Taking This Opportunity Help Me At All?
Since Home Loans often involve large sums of money, taking advantage of interest rate cuts seems like a good opportunity. With interest rates lowered, there is a great chance that your EMI or loan term will decrease. The Home Loan transition is beneficial if you have a long time to go, rather than when most of the term is over.
This is similar to reapplying for a new loan, so you will need to consider all factors before making a switch.
For the most part, repo rate discounts remain consistent; Lowering the base rate is seen as a great opportunity for lending banks. Commercial banks mobilize large amounts of money in the market, and lowering interest rates will allow more people to get loans and will benefit both themselves and the banks equally.
After all, if replacing your Home Loan seems like a big task, negotiating a lower rate is a more surefire way to get benefits over the long term. Interest rate cuts can also help you reassess your savings capacity and understand how much you’ve actually invested in your Home Loan.
Some Important Points to Remember
- Before changing your Home Loan or transferring it to another bank, calculate and analyze the cost advantages and try to negotiate the interest rate with your current bank for the loan term.
- If your current plan offers you a better long-term savings plan, stick with it.
- Applying for a pass is like applying for a new loan; The sooner you can transfer the mortgage, the better the opportunities to save more.
- Do good research, analyze your savings and the expenses you set aside for interest payments; then transfer your Home Loan.
Interest rate cuts often benefit both the borrower and the lender. Make your transition by keeping in mind the concepts you have just read; This way you will get the maximum benefit.