Is It Right to Switch Your Home Loan As Banks Cut Rates?

The Reserve Bank of India often slashes its repo or lending rate by certain base points. This makes it possible for the commercial banks in India to lend at cheaper interest rates. This has an effect on consumers who have availed a loan.

It could turn out particularly advantageous if you've been paying a higher interest rate. You can switch to lenders offering the same loans at a cut rate, simply by asking for a Home Loan transfer (Balance Transfer).

Realize the ways in which you can use this rate cut to enhance benefits on your existing Home Loan.

What is a Repo Rate?

The rate at which the RBI lends money to banks for a short period is referred to as a repo rate. The RBI when wants to make it costly for banks to borrow money, it raises the repo rate. On the other hand, while The RBI wants to make it inexpensive for banks to borrow money, cuts the repo rate.

How Do I Make a Switch?

Most banks start reducing their interest rates on lending with a cut in the repo rate and hence, the first step for you would be to approach your own bank (existing financer) and bargain for a lower interest rate on the amount that you have borrowed. If the financer agrees and lowers your interest rate from (say) 11 % per annum to 10.25% per annum, the savings you enjoy would be much higher if compared to what you pay at the present. Nevertheless, if the negotiation does not work, you can get in touch with a new lender offering a lower rate. By this, you may boost up your savings in the coming years. Making a switch would also guarantee that the amount you pay in the form of Equated Monthly Instalment (EMI) on your Home Loan also gets reduced.

You can apply for Balance Transfer (Home Loan transfer), a process by means of which the balance of your Home Loan will be transferred to the new lending bank.

The essential thing to keep in mind here is that a switch is not required just because the interest rates have lowered. You need to consider; by now, how much you've spent towards your existing loan. If you just availed a loan, it is better to make a switch at the initial stage. This way, it is easier for you to achieve any every benefit that may arise because of rate cuts. No matter how little you can bank through a switch, it is surely s a good idea to execute for your long-term savings goals.

What Do I Keep in Mind Before Making a Switch?

Did you decide to switch your Home Loan? Well, it is imperative to scrutinize the cost and effects of the lowered interest rate on you as a consumer. If your bank is prepared to settle on a lower interest rate, you can stick with your existing financer. In such a case, you have to consider the amount you have invested in the Home Loan. This would necessitate you to compute the overall benefit that you may be achieving. For example: if you have taken a loan of Rs.50,0000 on an interest rate of 11.50%, but bargain the same interest rate down to 10.25%, you can actually save over some lakhs.

It too makes a difference if you confirm with the bank ahead of time about the interest rates difference offered to men and women. Many banks offer a female-friendly plan. In such a situation, a shift may not be required whatsoever.

Conversely, if your present bank does not cut the rates, and you find yourself paying a higher interest rate and you suppose that better opportunities exist, then you are recommended to go for a switch. The final initiative is to use the decreasing interest rates and enjoy savings.

Key Points to Remember Before Finalising Home Loan Transfer

• Calculate and analyse the cost benefits and try to negotiate the interest rate with your existing bank for the term of the loan
• If your existing scheme offers you a better long term saving plan, continue with it
• The sooner you can transfer the home loan, the better the opportunities are to bank more money
• Do your study well and evaluate your savings

Home Loan Transfer: Is it Helpful?

As Home Loans normally involve a large sum of money, reaping advantages of rate cuts seems a good break. With the interest rates reduced, there are great chances to either reduce the EMI or the tenure of the loan. A Home Loan switch would be advantageous if you still have a long term to go, rather than when most of the period is serviced. It is like applying for a new loan all over again, consequently, you will have to consider all the aspects before initiating a switch.

Well, negotiating for a lower rate is a definite way to earn benefits over a long period of time. The rate cuts may also help you to re-evaluate your saving capacity, and help you realize how much you are truly investing on your Home Loan.
Enjoy maximum benefits!