Ask Mint | Fixed rate loan? Check how ‘fixed’ it is

Ask Mint | Fixed rate loan? Check how ‘fixed’ it is

To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A will appear every other Monday.

I took a loan of Rs15 lakh almost a year ago from a bank at 11.50% fixed interest for 20 years. If I make part prepayment of, say, Rs5 lakh, would the bank re-calculate the loan amount as well as the interest payable considering the loan amount would now be reduced to Rs10 lakh and the outstanding term now is 19 years?

After adjusting the prepayment of Rs5 lakh from the outstanding principal amount, the bank would give you three options: a) Reduce the equated monthly instalment or EMI while keeping the same tenure; b) Reduce tenure while keeping the same EMI; or, c) A combination of both.

Depending on the option you choose, the revised EMI will be calculated accordingly on the outstanding principal amount of Rs10 lakh. However, you may want to check with the bank about the prepayment charges that may be applicable on the amount being prepaid.

I am planning to take a fixed-rate housing loan from a leading bank. What are the important points I should keep in mind?

Since you want to take a home loan on a fixed rate, you must check whether the fixed rate is applicable for the entire period of the loan or whether it comes with with a condition whereby the rate is changed after a certain period of time, which may be two years, five years, etc.

If possible, you could also seek a copy of the loan agreement and read it carefully before taking the final decision.

I had taken a loan from a bank wherein there was insurance attached to the loan. I am not very happy with the services offered by the bank, hence I am planning to transfer my loan account to some other bank, which provides me decent after-sales service. When my loan is taken over by any other bank, what will be the status of my insurance, as I have paid a single premium for the entire insurance cover for the home loan?

In the case of a balance transfer whereby you would be transferring your existing loan to another housing finance company/bank, the insurance policy attached to your existing loan will continue to be in force depending upon the terms of the agreement between your bank and the insurance company.

Some home loan companies already have this arrangement in place. For instance, as per our arrangement with HDFC Standard Life, even if you were to transfer the existing loan, which has an insurance policy built around it, the policy will continue to be in force.

However, the policy will have to be reassigned in favour of the new lender so that in the event of death, it ensures that your outstanding loan, up to the amount insured, is adjusted/repaid to the new lender.

Renu Sud Karnad is joint managing director, HDFC. Readers may write in with their queries and comments to