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In an online chat with Get Ahead readers on May 3, Harsh Roongta answered their queries on when, why and how to switch their home loan lenders.
Here's the unedited chat transcript.
venkat asked, Hi,I am having Homeloan from IDBI bank and recently they have reduced the interest rate to 12.25%, but they are giving at 11% to new customers. Axis bank is giving full term fixed interest at 11.75%.Is it advisable to switch to Axis bank fixed rate? or can I go to other bank who is giving 10.75% floating?
Harsh Roongta answers, at 2012-05-03 16:12:31Venkat - normally you should go for a fixed rate when rates are at the lowest which is clearly not the case today. interest rates are expected to drop further (maybe with a lag) but the direction of interest rates is clear. So currently only floating rates makes sense. On floating rates if you poay anything more than 10.75% you are paying too much. If you are not able to get this floating rate loan at 10.75% (assuming that you have paid all your EMIs always on time and the property title is good and your income details are as good as if not better than what they were when you took the loan) you should apply for a balance transfer loan on www.apnapaisa.com and our network of providers will compete to provide you the best deal. Remember IDBI Bank cannot charge you a pre-payment charge and the processing fee charged by the new lender cannot exceed 0.5618% or Rs. 11,236 whichever is lower. The new lender may also be willing to give you an additional loan while keeping the EMI and the tenure same as the existing lender or provide you lower EMI or lower tenure. To summarise - if you are paying mroe than 10.75% on a floating rate loan you are apying too much.
sunil asked, I have existing home loan with HDFC. To reduce my ROI (by 1%) they asked me to pay .5% of existing loan amount. Is it really worth to get this done?
Harsh Roongta answers, Depends. If after the reduction your interest rate is 10.50% or at the most 10.75% it may be worthwhile to pay a fee of 0.5618% (0.50% +serfvice tax) just to avoid the formalities involved in transferring legal documents from one lender to another lender. But dont oay more than 10.75%. In any case if you are not a teaser rate loan consumer then they cannot charge you any pre-payment charge and as i said in response to the first question you will get the rate of 10.75% from another bank easily.
vineet asked, Hi Harsh, I have taken home loan from LIC @ 10.65 floating. Will LIC reduce the interest rate? Should i continue with LIC? Is there any other better option for me to switch ?
Harsh Roongta answers, Fisrt please re-confirm that the rate being charged to you is still 10.65%. Many times the rate changes without changing the EMI since the lender may increase the tenure. In teh current circumstances 10.65% floating is a decent rate and it may not be worthwhile to shift to another lender. But please re-confirm that you are paying 10.65% only and not some other rate.
raj asked, sir I have taken homeloan from hdfc in 2010 under dual home loan scheme in which intialy it was fixed basis and now from april 2012 its in floating basis. as per rbi gudelines i want to shift the same to sbi but hdfc is asking for aforeclosure charge of 2% .can u pl guide me if if 2% is payable .the say since it is not from your sources u have to pay 2% foreclosure.kindly guide me.
Harsh Roongta answers, HDFC is correct. HDFC is governed by National Housing bank (and not RBI) who have just clarified that the regulation banning charging of pre-payment charges does not apply to the so-called "teaser rate" loans even after they have become floating. So unfortunately you will have to fork out 2.2472% (with service tax) as you are not pre-paying the loan from your own sources. It will still make sense for you to shift though as the flaoting arte loan from HDFC for you will be around 11.75% and the new rate will be around 10.50 - 10.75% depending on the loan amount. You will quickly gain this back in 2 years and then enjoy the benfit of lower rates for the balance tenure of the loan.
Daniel asked, HFCs like HDFC are usually very reluctant to pass on the benefits of RBI's repo cut to existing home loan customers although they are quick to entice new customers. So what should existing customers look forward to?
Harsh Roongta answers, Existing customers should vote with their feet. If you have been a good customer and paid all EMI in time nothing stops you to shift your loan to another lender who will be happy to give you a much lower rate and best of all you dont even have to pay any pre-payment charges in most cases.
farhan asked, Hi, I have existing home loan from Union Bank with 11% rate floating, is it worth to shift to another bank at this point? If transfer is required than what extra expense will come, like any commission, etc.
Harsh Roongta answers, You should consider shifting if you get 10.50% which you can possibly get depending on your repayment track record, property title and income. At most you will need to pay a processing fee of around 0.5618% or Rs. 11,236/- whichever is lower.
sundar asked, Hi Sir, LICHFL is costing me 11.65% intrest. I have just another 1.6 lakhs Prinicpal remaining. Do you think I would save anything if I move to another bank at this Principle.
Harsh Roongta answers, very small loan. Interest rate is also competitive. Just continue
madhu asked, Is there any means to verify that banks are really decreasing the loan interest from that stipulated by RBI ?
Harsh Roongta answers, It is a huge misconception that changes in RBI policy rates automatically mean changes in home loan interest rates. Off course the banks have contributed to this perception by telling consumers while increasing rates that they have to do this because RBI has incrased rates. RBI policy rates are only one determinant (an extremely important determinant but not the only one) in the interest rates fixed by the bank on its loans and fixed deposits. So the short answer to your question is that there is no "stipulation" by the RBI to banks to reduce interest rates.
Ajuu asked, On what basis in our EMI the principle is less and iterest is more in initial years of home loan.. Do all banks follow same approach or government banks are better? pls reply
Harsh Roongta answers, Sir this is arithmatic. None of the banks are pulling a fast one on the consumer here. When you a pay a fixed amount every month the interest component in the initial year will always be higher. A simple example will explain this. Assume you borrow Rs. 1 lakh and pay back with 10% interest. Option one - you pay Rs. 10/- at the end of teh first and second year and Rs. 110000/- at the end of 3rd year marking full repayment. The other option is you pay Rs. 40,211/- at the end of every year. At the end of year 1 the principal paid is Rs. 30,211 after deduction Rs. 10,000 as interest for the first year and the principal carried forward is Rs. 69,789 (Rs. 1 lakh minus 30,211. In the second year the interest @ 10% on 69,789 is Rs. 6,979 and the principal repaid is therefore Rs. 33,232/-(Rs. 40,211 minus Rs. 6,979/-) and now the principal carried forward is Rs. 36,557. The interest @ 10% next year is 3656 and the balance amount is 36555/- which pays of the principal amount. So the break up is as follows year 1 Int - 10,000Prin. - 30,211 year 2 Int - 6,979 Prin -33,232 Year 3 Int - 3,656 Prin -36,555 What applies for yearly payment applies for monthly payments as well. all banks calculate in teh same way.
wedwq asked, Is it legal for charge to conversion charge to increase spread the way HDFC is doing now ? They even have an online option for that now ! Is it allowed by the regulator
Harsh Roongta answers, It is not prohibited.
rashmi asked, sir I have a 80L homeloan frm hdfc @12%. Can be reduced to 11% by paying .5% fee. Should I shift to SBI offering 11% plus OD facility in max gain scheme that can lead to interst saving. but I will hv to pay around Rs. 2.20 L as foreclosure and procesing charges. Should I transfer?
Harsh Roongta answers, With your high loan amount and assuming your track record is excellent you should try for 10.75% with OD facility. Apply on http://www.apnapaisa.com/loan/home-loan-india/compare.html to make providers compete for your loan and provide you the best rates.
Rohan asked, I have a loan with SBI @ 12.5% but the official asked me to wait for some more time before I change them to base rate? Should I wait?
Harsh Roongta answers, insist and get it changed imemdiately to base rate regime with interst rate @ 10.50% or 10.75% as applicable for your loan. If they are not doing it shift your loan to another bank.
Harsh Roongta says, ok folks. I think this about anmswers most of teh questions raised here. Please go through the transcripts of the chat as a question similiar to yours woyuld have alreadsy been answered. You can also ask your questions on wwww.facebook.com/apnapaisa .
rashmi asked, Is it advisable to shift from hdfc to sbi max gain both at 11% ROI) by paying 1.5 L forclosure & processing charges. The SBI Max gain OD facility is luring me to shift.
Harsh Roongta answers, do better. you can shift to another bank which will give same facility as maxgain but at 10.75%. Try applying on http://www.apnapaisa.com/loan/home-loan-india/compare.html to make providers compete for your business.
Ajuu asked, thanks for the detailed reply. Your option 1 and 2 are fine enough but in our case for laon of 20L for 20 years, after paying 240,000 (29k EMI) after 1st year the principle deduclted is 30k and intrest is 2,10,000.. this is simply an unfair option to end users
Harsh Roongta answers, why. Just think about it. The interest rate in your case works out to 10.50%. 10.50% of Rs. 20 lakhs is Rs. 2.10 lakhs. What's unfair about this? Use this calculator to better understand this issue http://www.apnapaisa.com/loan/loan-advice-india/amortisation.html