Lenders today are aggressively reducing interest rates offered on home loans to increase demand. However, if you’re an existing borrower, and still troubled by the exorbitant rates as your loans are either base rate-linked or benchmark/retail prime lending rate (B/RPLR)-linked, here are a few tips to reduce your interest amount.
These tips can be employed in the case of Home Loans, House Renovation Loans, Home Extension Loans & Rural Housing Finance, Plot Loans, and even Non-Residential Premise Loans.
- Switch between schemes in the adjustable interest rate option
The borrower often has the option to change the spread or to switch between schemes by paying a nominal fee to the lender to either reduce your monthly instalments (or EMIs) or increase the loan tenure, thereby decreasing the monthly payable amount. Alternatively, the banks also provide an option to convert your existing adjustable rate to the lender’s current adjustable rate by effectuating a change in the spread as indicated in the loan agreement. However, in the case of partly disbursed loans, the fee payable to avail the conversion can be 0.25% plus applicable taxes of the principal outstanding plus the undisbursed loan amount or ₹5000 plus applicable taxes, whichever is lower.
- Switch from fixed interest rate option to adjustable interest rate option
The borrower may also have the option to switch from fixed interest rate option to adjustable interest rate option. A variable interest rate loan is one in which the interest rate paid on the outstanding debt varies based on an underlying benchmark or index that changes on a regular basis. A fixed interest rate loan, on the other hand, is one in which the interest rate remains constant over the duration of the loan. The fee applicable for such transfer is usually 0.25% plus applicable taxes of the principal outstanding plus the undisbursed loan amount or ₹15,000 plus applicable taxes, whichever is lower. In case of a partly disbursed loan, the fee payable is on the principal outstanding plus the undisbursed loan amount.
- Switch to a lower interest rate in a dual rate loan option
A dual rate loan is a fixed-cumulative-floating rate loan that begins with a fixed interest rate for 1 to 5 years before transitioning to an adjustable-rate mortgage that follows the retail prime lending rate. These fixed interest rates are sometimes set at ridiculously low levels (thus the name “teaser rates”) and then rise to market rates after the honeymoon period finishes. The borrower may switch from previous interest rate to current interest rate under these schemes.
If you are not able to repay your loans, consider loan settlement. Register and talk to your counsellors.