Interest rates have been heading northward for some time now, inflating the equated monthly instalments (EMI) on home loans, particularly for individuals who have opted for floating interest rates. Understandably, most of them are disconcerted by the impact of rising rates on their monthly budget. Moreover, banking circles are now abuzz with talks of further hardening of rates in the next few months.
Financial experts always suggest that one should keep the EMIs within manageable limits. In other words, if the home loan burden becomes too heavy, try to pre-pay the loan, negotiate with the bank for better rates, or extend the tenure to keep your monthly budget on track.
Making the switch
Home loan refinancing - or balance transfer - by switching to another lender may give you a better deal. "Borrowers usually complain that banks are unfair to them, since they are quick to hike the floating home loan rates in a hardening interest rate scenario, but are less inclined to reduce it when the rates soften. Many often do not consider the option of switching," says Harsh Roongta, CEO, Apnapaisa.com . "Many borrowers who have taken loans prior to June 2008 would have seen their rates touch 12%-13% now. Such borrowers especially should look at the option of balance transfer."
Lenders are willing to take over loans by offering a lower rate of interest to attract borrowers. While a balance transfer will certainly reduce your EMI outgo, there is no one-size-fits-all solution for everybody. To know if it will help you, you need to decipher its workings and calculate the actual benefit before taking a call.
Do the groundwork
Step one, of course, is to do some research on interest rates being offered by other banks. The rates are displayed on the websites of all banks/HFCs. This will help you identify the best deal - a bank that is willing to charge a substantially lower interest rate after taking over your loan.
"Balance transfer could prove to be beneficial if the difference is at least 175 to 200 basis points (that is 1.75-2.00 percentage points)," says Kamlesh Rao , executive vice-president, retail assets, Kotak Mahindra Bank .
"However, given that a home loan is a long-term debt, even half-a-percentage point would make a lot of difference over the long term," points out Roongta.
Therefore, the tenure remaining in the original loan will play a crucial role in deciding whether to switch the lender. The longer the tenure left, the higher is your total savings likely to be.
"If you have merely 3-4 years left to complete the repayment, switching will make little sense. It will work better if the tenure outstanding is around 12-13 years," says Rao.
Source: Economic Times
Thanks and Regards,
Sanchari Sinha,
Intern at DENIP Consultants Pvt. Ltd.
No comments:
Post a Comment