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 out a loan.
It could prove particularly beneficial if you’ve paid a higher interest rate. You can now switch to lenders offering the same loans at reduced interest rates simply by asking for a home loan referral.
Discover the ways you can use this rate cut to improve the benefits of your existing home loan.
How do I make a switch?
Many banks have already started lowering their interest rates on loans and therefore the first step for you would be to contact your own bank and negotiate a lower interest rate on the amount you borrow.
If the banker agrees and lowers your interest rate from (say) 11.75% per year to 10.25% per year, the savings you accumulate would be much higher than what you are paying now. However, if negotiation doesn’t work out, you can turn to a new lender that offers a lower interest rate and increase your savings for years to come. Switching would also ensure that the amount you pay on your home loan in the form of EMI is also reduced.
You can apply for a home loan transfer, in which the balance of your home loan will be transferred to the new lending bank.
It is important that a change is not necessary just because interest rates have fallen. You must consider how much you have already spent on your existing loan. If you have taken out a new loan, then it is better to make a switch at the very beginning.
This will make it easier for you to take advantage of any interest rate cuts. No matter how little you can save by switching, it’s always a good idea to implement it for your long-term savings goals.
What do I have to consider before switching?
Before you make the switch to your home loan, it’s important to analyze the cost and impact of the reduced interest rate on you as a consumer.
If your bank is willing to negotiate and lower interest rates, you can stay with your existing home loan. In this case, you need to consider the amount you have invested in the home loan. This would require you to calculate the total benefit you might get. Example: If you took out a loan of Rs. 50,000 at an interest rate of 11.50% but negotiated the same rate down to 10.25% you could save several lakhs.
It also makes a difference whether you check with the bank beforehand about the difference in interest rates for 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 existing bank doesn’t lower interest rates and you find that you’re paying a higher interest rate when you think there are better options, you need to switch. The ultimate idea is to use falling interest rates to your advantage.
Will using this opportunity help me at all?
Since home loans tend to be large sums of money, it seems like a good opportunity to take advantage of rate cuts. When interest rates are lowered, there’s a good chance that either your EMI or the life of the loan will be reduced. Switching the home loan would be beneficial when you have a long term ahead of you, rather than when most of the term has expired.
It’s similar to reapplying for a new loan, so you need to consider all the factors before making a switch.
Repo rate cuts remain mostly flat; a key interest rate cut is seen as a great opportunity for the lending banks. Commercial banks mobilize a large amount of money in the market, and lowering interest rates would allow more people to borrow, which would benefit both themselves and the banks.
Above all, if changing your home loan seems like a tall order, negotiating a lower interest rate is a sure-fire way to reap benefits over the long term. The rate cuts can also help you reassess your saving ability and understand how much you’re actually investing in your home loan.
Some important points to remember
- Before you switch or transfer your home loan to another bank, calculate and analyze the cost benefits and try to negotiate the interest rate over the life of the loan with your existing bank.
- If your current system offers you a better long-term savings plan, stick with it.
- Applying for a switch is like applying for a new loan; The sooner you can transfer the construction loan, the better the chances of saving even more money.
- Do your research well, analyze your savings and the expenses you incur to pay interest. then transfer your home loan.
Rate cuts tend to benefit both the borrower and the lender. Make your switch keeping in mind the concepts you just read about; This way you will enjoy maximum benefits.