Loan terms

Home loan: it’s time to renegotiate the conditions of your loan

Contact your existing lender and ask for a rate concession. If the application is not accepted, find another lender

By Raj Khosla

As the second wave of pandemic hits India, it’s time to review and rebalance your personal finance portfolio. Although different people have differing priorities, saving an extra dollar for emergencies is a wise step for everyone. With multiple monthly obligations such as EMI for home loans as well as essential day to day expenses, the benefits of reducing the EMI charge cannot be emphasized enough.

Lower interest rate
Over the past year, home loan interest rates have hit their lowest point and are currently at their lowest in a decade. With a little financial engineering, you can actually lower your EMI. So whether you got a loan before October 2019 or are managing a home loan above 8.5% per annum, there’s a good chance you’ll get an interest rate concession of 100 basis points. . However, in case you opted for the recent RBI moratorium, it will be difficult to finalize a refinance option.

Contact existing lender
It’s always a good idea to contact your existing lender first and ask for a rate concession based on your existing relationship and repayment history. Also, you do not need documents to initiate applications with the current lender. You can contact your online bank and share your request, a little forcefully, that is, share competitive market information. Additionally, if you are managing a fixed rate variant or a legacy MCLR-linked loan, switching to an external benchmark such as the repo-linked rate will lower the interest rate. The lender will charge a nominal fee for the conversion and the new rates will be assigned according to the prevailing repo-linked rate.

Renegotiation with an existing lender is always the first option. An illustration: A loan of Rs 1 crore at an interest rate of 8.5% and a remaining term of 15 years, carries an EMI of Rs 98,474. When revised to 6.75%, the EMI is Rs 88,491. A monthly saving of Rs 10,000.

Request a loan transfer
If the rate concession request was not accepted by your existing bank, find another suitable lender. Look for post-disbursement services and responsive digital customer service in addition to the lower interest rate. With your new lender, clearly communicate the terms and requirements of your loan. A new loan agreement will be provided and a processing fee and administration fee will be applied.

So do the math, calculate the savings, and tell the lender specifically what your intention is, i.e. whether you are looking for EMI reduction and term extension, or a top-up for debt consolidation or a reduction capital.

Reference to the previous example: if your age allows for a five year extension of the term from 15 to 20 years, the loan Rs 1 crore @ 6.75% will mean an EMI as low as Rs 76,036 resulting in a huge monthly savings of Rs 20,000.

Get an additional home loan
EMI for personal loans, auto loans are priced at higher interest rates (9-12% per annum) compared to 6.75% for home loans. Carrying over credit card balances is one of the most expensive sources of financing (18% to 30% per year).

If age and income permit, an EMI of Rs 98,847 will secure a loan of Rs 1.3 crore at 6.75% with a term of 20 years. Hence a release of Rs 30 lakh to meet the most expensive facilities and then a possibility of surplus for a contingency fund.

Expect Covid Hurdles
Due to the lockdown, banks are working with limited physical strength. It is not possible to personally go to a bank to share the balance transfer request and file a No Objection Certificate (NOC) request. In addition, the new lender must complete a property appraisal and legal check before authorizing loan sanction. All of these steps require manual intervention. So be prepared for Covid-specific delays.

The author is founder and MD, MyMoneyMantra.com

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