While the interest rate has dropped significantly in the past two years and is helping new borrowers, what about the existing borrowers? There are in fact some ways in which existing borrowers can bring down their Home Loan Interest Rate too. Find out more in this post.
Lenders in India have aggressively followed on the heels of the RBI which has reduced the base repo rate from 8.0% in 2015 to 6.0% in 2017. This drop is significantly helping new borrowers as home loans are now available at a cheaper rate as compared to what it was a few years ago.
But while this drop in interest rate is benefitting new borrowers, what about the interest rate on existing loans? While most of the lenders have already reduced the interest rate for existing borrowers, newer borrowers are still in a better position.
However, there are a number of ways in which existing borrowers can further reduce their Housing Loan Interest Rate. Let us have a look at five methods-
- Switch to Another Lender
One of the simplest ways to bring down the existing home loan interest rate is to switch to a lender that is offering home loan at a lower rate. However, ensure that your current lender doesn’t charge any penalty for this switch. Also, check the processing fee of the new lender and make sure that the overall difference in the amount you repay to both the lenders is significant and easily pay for any additional fees or charges.
- Consider an NBFC for the Home Loan
Banks in India now follow the MCLR (Marginal Cost of fund based Lending Rate) interest regime where they are not allowed to offer home loans at an interest lower than the MCLR. However, NBFCs still follow the old PLR (Prime Lending Rate) regime. As a result, NBFCs have more freedom when it comes to increasing or decreasing the interest rate. This makes it easier for existing borrowers to get a better deal from an NBFC.
- Discuss the Loan with your Lender
One of the best ways to bring down the interest rate on an existing home loan is to discuss the loan with your lender. If you have a good payment history, there is a possibility that the lender might reduce the rates for you. With the easy availability of the feature where you can easily switch to any other lender, your existing lender wouldn’t want to lose you as a customer and might give in to your request.
- Consider pre-paying the home loan
While pre-paying the home loan in part or in full will not reduce the current interest rate on loan, you can reduce the overall interest that you pay to the lender. If you can afford, try to repay a significant amount in the initial years of the loan so that the principal decreases and results in a reduction in the interest rate of future payments. But do check the pre-payment charges before pre-paying.
- Switch to Lower Rate
In case of NBFCs, you can switch to a new home loan from the same NBFC by paying a small conversion fee. NBFCs change the spread on a regular basis which helps in reducing the overall interest rate. You can switch to a new spread and save money on the interest outgo with this method too.
You are not stuck with an expensive home loan even if you have taken the loan in the past. Use these tricks and you can surely witness a considerable difference in the interest rate which can save you thousands and lakhs of rupees over time.