Answering Some Not So Common Doubts For Home Loan Borrowers

Answering Some Not So Common Doubts For Home Loan Borrowers

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While we make a lot of research and effort before taking a home loan, it's important to be active while repaying the EMIs equally. During the long tenure of a home loan, borrowers can have lots of doubts about it, right? So here we answer some not so common yet vital doubts regarding existing home loans.


What choices do people who already have home loans have? 

With home loan rates slowly beginning to rise after being at all-time lows, home loan borrowers would definitely want to switch to a lender whose home loan rates are lower than theirs. In fact, many lenders are focusing on and promoting home loan takeovers during this holiday season by offering Best Home Loan Interest Rate and no or low processing fees if you choose a balance transfer facility.


Should MCLR borrowers switch to HL with a repo link?

Yes, it makes sense. Note that the cost of funds affects the interest rates on MCLR-linked loans. It's an internal aspect that is not known to us and cant be figured out. So, the best thing to do is switch to loans tied to external benchmarks to fetch the Best Home Loan Interest Rates. Most banks use the repo rate as an external standard for offering Best Home Loan.

-The new floating rate home loans and other retail loans will have to use the external benchmark regime starting October 1, 2019. This is because the MCLR-based regime is more complicated and hard to understand.

Borrowers with loans tied to external benchmarks find out about changes in the repo rate or other underlying external benchmark rates faster, regardless of how much it costs their banks to get money.

Best Home Loan borrowers who are okay with their interest rates changing more quickly, both up and down, can switch to the external benchmark regime. Keep in mind, though, that banks may charge a one-time fee to switch to the external benchmark regime. 

Also, remember that cost of funds for MCLR isn't known clearly as it is an internal standard that a regular borrower and external person can't figure out since it is insider information of the lender. Whereas repo rate is linked, loans are more transparent as per RBI guidelines.

So borrowers with loans tied to external benchmarks find out about changes in the repo rate or other underlying external benchmark rates faster, regardless of how much it costs their banks to get money.


What are the usual fees for refinancing? 

If you choose HLBT, keep in mind that the new lender will treat your HLBT request as a new home loan application and charge you fees like a processing fee, which is usually between 0.35 and 1.5% of the loan amount.


-However, many lenders are promoting HLBT during the holiday season so that existing borrowers can take advantage of the low HL rates by offering the Best Home Loan rates and no processing fees on HLBT cases. But it's still important to think about any fees that the new lender might charge before going with the balance transfer option. Don't do it unless the total amount you'll save on interest payments is a lot more than the cost of making the balance transfer.


What are some other perks that banks offer? 


Since the holiday season is approaching and lenders want demand for loans, most banks and HFCs have switched gears and are now trying to attract potential homebuyers with low and Best Home Loan Interest Rates and no or low processing fees, and even lower rates for women.


-Many lenders are also encouraging people who already have a home loan to switch to HLBT so they can take advantage of the low-interest rates. And choose for HLBT to switch to interest rates that are lower.


Is now a good time to take HL and buy a home for someone who has been waiting?


Repo rate increases in the past quarter have caused many lenders' home loan (HL) rates to start rising after reaching all-time lows in the past year or so. The start of the holiday season within the next month or so will also boost offers.


So people who want to buy a home should ideally do it now if they are financially ready. Those with adequate downpayment should apply now before the rates rise further. But compare the home loans offered by as many lenders as possible to find the Best Home Loan based on their eligibility criteria, such as income, credit score, job profile, etc. The best way to do this is to go to online financial marketplaces where you can compare different loan offers.


Does it make sense to pay HL ahead of time if you have money in FD?

When trying to pay off your loan early, it's important to think about the returns from investments you already have. Even though home loans probably have the lowest and Best Home Loan Interest Rates of all retail loans, their rates are usually higher than the returns of most fixed income investments, like FDs from banks. So, a surplus in fixed income products like fixed deposits that aren't set aside for another financial goal can be used to pay off the loan early.


Many public sector banks and a few private sector banks and HFCs are currently offering Best Home Loan Interest Rates, as low as around 7 percent per annum (p.a.). Bank FD rates are currently around 3 percent to 5.5 percent per annum (p.a.) for public sector banks and 4 percent to 7 percent per annum (p.a.) for private sector banks.


It is noteworthy that no one should ever pay off their Best Home Loan early with money from their emergency fund or investments that were set aside for important financial goals. Like a child's college fund, a wedding fund, or a retirement fund. If you cash in the investments, you already have for these goals, you may have to take out expensive loans later to reach them.

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