The COVID-19 pandemic has completely changed our traditional thinking. It has made all of us realise the importance of having our own home, especially when one considers working-from-home as the new norm across industries. The pandemic had rippling effects of softening interest rates and increased liquidity in the banking system. Kotak Mahindra Bank has recently slashed its home loan interest rates from 6.65 per cent to 6.5 per cent as a festive season offer. The reduced interest rates will be valid till November 8, 2021.
Other banks are expected to follow Kotak Mahindra Bank's footsteps as well. The lower interest rate regime is here to stay for the time being and it brings in a lot of relief to existing home loan customers.
In fact, banks across the country have steadily slashed home loan interest rates since the last quarter of 2020, passing on rate benefits to customers, which has revved up the sagging demand for housing loans. While property developers witnessed increased housing sales on the back of lower interest rates post the relaxation in the lockdown last year, people are also on the lookout for bigger homes since the home has become the centre of our lives.
Several other domestic top-notch commercial banks such as the State Bank of India, HDFC, ICICI Bank, Axis Bank, LIC Housing Finance, etc, among others, have slashed their home loan interest rates in 2020, with further cuts in 2021, with rates now ranging from 6.65 per cent to 6.95.
Given the current economic condition, it is best to opt for floating rates as one can take advantage of the low-interest regime. Given the liquidity in the system, home loan rates are unlikely to see a sharp rise in the near future. Of course, one can’t rule out the same later on if interest rates start increasing. Hence, existing home loan customers can take this opportunity to transfer their balance loans.
Low credit interest is an opportunity for some of the existing individuals to switch their home loans to lower rates. Lower interest rates would help existing customers in trimming their EMI outgo.
Also read: Low-cost Housing to Drive Growth
What should existing home loan borrowers do?
You should first contact your existing lender and ask for a rate concession basis your existing relationship and repayment track record. Moreover, individuals do not require documents to initiate requests with the current lender. You can contact your bank online and share your request, a little forcefully, i.e., share competitive market information. Also, if you are servicing a fixed rate variant or an old MCLR linked loan, switching to an external benchmark such as repo linked rate will cut down the rate of interest. The lender will charge a nominal fee for switching and the new rates will be assigned as per the prevailing repo linked rate. Re-negotiating with an existing lender is always the priority option.
However, if the request for rate concession has not been entertained by your existing bank, search for a suitable alternate lender. Look for post disbursement services and responsive digital customer service besides the lower interest rate. With your new lender, clearly communicate your loan terms and requirements. A fresh loan agreement will be furnished and a processing fee and administration charges will be applied. So, do the calculations first and then inform the lender about your intent, i.e., whether you are seeking EMI reduction and tenor extension, or top-up for debt consolidation, or principal reduction.
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