BackTry this to reduce the burden of RBI rate hike on your home loans
Amid consecutive RBI rate hike, home loan has become highly expensive for the new borrowers and also for the existing buyers. Know some of the ways in which existing borrowers can reduce their home loan
PremiumHome loan buyers have borne the brunt of the back-to-back RBI rate hikes to curb rising inflation in India. For the last two years, home loans have become more expensive for new entrants and also for existing borrowers. The burden of expensive home loans has been passed on to the borrowers either in the form of higher interest rates or extension.
Since May 2022, the RBI has increased the key repo rate six times by a total of 250 basis points to curb inflation. The move has also resulted in higher home loan rates. For some, a home loan tenure has even extended to their retirement age. However, borrowers can opt for the following measures to reduce interest rates on their loans.
Also Read: Is it a good time to opt for a home loan balance transfer amid the prevailing rate cycle?
Switch to other bank
Even though there has been a rise in home loan rates, banks are reducing their loan rates to attract customers in the new financial year. By keeping in mind their loan tenure, loan rates of other banks, processing fee, and predictions of an upcoming rate hike, borrowers can think of switching their home loans to other banks.
The processing fee is the money paid by loan borrowers to the new lending bank you are switching to. Generally, it is around 0.5% of the loan amount. Bank of Maharashtra and Bank of Baroda have lowered the interest rates on their home loans despite rising interest rates. Moreover, the Bank of Baroda has also removed the loan processing fees. Last week, the Bank of Maharashtra lowered its home loan interest rates by 20 basis points to 8.40%, making it one of the lowest in the sector. Just like these two banks, several other banks have also reduced their loan rates to encourage other borrowers to switch to these banks.
Negotiate with existing lender
In case of a lack of attractive options by other lenders, borrowers can also try to negotiate with their existing lenders to reduce loan rates. In such a case, home loan customers need to maintain their higher CIBIL score to make the situation in their favour while negotiating with the lender.
Also Read: How to claim income tax benefits on home loans in FY23?
Loan conversion
Apart from negotiating with banks, borrowers can check on their bank's website for any conversion scheme. Under a conversion scheme, existing borrowers can reduce the interest rate of their home loans in the existing bank by paying a certain amount of money termed as conversion fee. The conversion fee is generally 0.25-0.5% of the outstanding loan. Even during loan conversion, it is better to negotiate with a banker before paying the conversion fee to get the lowest possible home loan rate.
Loan Refinancing
Another way, to dodge the repercussions of an aggressive rate hike on your home loan is to opt for loan refinancing. Under this method, borrowers can replace their existing loan with a new loan that has better terms like lower interest rates and shorter tenure. Here also, borrowers have to pay a processing fee of 0.5 per cent.
During refinancing, an existing home loan customer of a bank takes a new loan to pay off the old one. In many cases, banks are willing to provide better deals for borrowers who are looking to refinance their loans.
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