Benefits of Applying Online
When Banks Compete, you win.
Apply for a Home Loan at ApnaPaisa and we will match your requirements with the best offers from our network of over 400 service providers. We will get a maximum of five providers to compete for your business. WHEN BANKS COMPETE YOU WIN. You can then decide which home loan is best for you based on:
- Lowest Interest Rate
- Lowest EMI
- No Pre-payment charges
- Lowest Processing Fees
- Maximum Eligible Loan Amount
- Mandatory Documents Required
- Lowest Processing Fees
Or any other factor that is important to you.
Negotiating Tips
1) If you have a good credit record and your income is sufficient to justify the loan you can negotiate on interest rates. You can also try and get Processing fees or legal or valuation fees reduced or completely waived.
2) If you go for a floating rate loan then pre-payment charges are not payable.
3) When interest rates are high and are expected to go down you should go in for a floating rate loan as it makes no sense to lock into high fixed rates or the so called Dual rate loans where rates remain fixed for a couple of years before shifting to regular floating rate loans. Please review this decision at least once every 6 months
4) Take term insurance and critical illness and accidental disability policy for the full loan amount to make sure you or your loved ones don't have to worry about loan repayment should you die or are disabled due to a critical illness or accident. You cannot be forced to buy this policy from the insurance company chosen by the lender - you should choose your own insurer.
Interest Rate Hike-How to Cope
how to cope with home loan interest rate hikeHarsh Roongta
14 Aug 2007
The monthly budgets of more than 3 million households have gone for a toss due to the relentless rise in housing loan rates over the last 24 months. As people struggle to pay the increased EMIs they also worry that rates are set to rise further and will thus put even further strain on their already stretched monthly budgets. For somebody who took a Rs. 10, 00,000/- 20 year home loan at the bottom of the interest rate cycle the EMIs have gone up from Rs. 7,600/- to Rs. 10,399/- (See Example). Inspite of the recent increases in monthly incomes this huge increases in EMI coupled with high inflation rates on other items of daily living is beginning to take its toll on the monthly disposable incomes and savings.
So what options do you have to safeguard yourself against this relentless rise in interest rate?
- Should you shift to a "fixed rate" home loan?
This is not advisable as very few banks provide genuine fixed rate loans anyway. Genuine fixed rate loans are those where the loan document does not have any clause in the agreement that allows the bank to change the "fixed rate" of interest. These loans are not available for less than 13.00% plus you will need to pay a fee for shifting to such loans. So your EMIs will go up immediately plus you will need to pay a fee to shift to such fixed rate loans. This shift will remain more expensive till the floating rates move beyond the current fixed rates of 13.00%. We must not forget that interest rates move in cycles and that over the long tenure of a typical home loan you will be able to benefit from the drop in rates (as and when they happen) also just like you have paid for the increase in rates.
Whilst the short term outlook on interest rates clearly points to an increase, an assumption that interest rates will forever remain high will be incorrect. We have already seen one cycle of interest rate movements in this decade (downwards from 2000 to 2004 and broadly upwards thereafter) and there is no reason to believe that this will not repeat itself again. Hence unless you are completely risk averse you should stick to the floating rate loan.
- Should you shift to another lender offering a lower floating rate loan?
This is a worthwhile option. As a rule of the thumb if the new lender is providing a floating rate loan that is at least 0.50% cheaper than your existing lender and the balance tenure is not less than 7-8 years then this is an option that you should definitely explore despite pre-payment charges that you might have to pay to your existing lender. You need to be vigilant that you are getting the best possible floating rate loan in the market as some banks charge higher rates to existing consumers while giving lower rates to new consumers. So ask around in the market and keep yourself informed on this score. Remember your ignorance will prove quite expensive.
- What are the other options to balance your monthly budget:
- If you have the money pre-pay a portion of your loan to keep the EMI at the same level. In most cases banks do not charge for partial pre-payments and hence this is an excellent option, provided off course, you have the savings to make this pre-payment. In the given example you will need to pre-pay roughly Rs. 33,000/- for every 0.50% increase in interest rate to keep the Emi at the same level as earlier.
- If you neither have the savings to make the pre-payment nor any money to pay the increased EMI then check whether the bank is willing to increase the loan tenure and keep the EMI at the same level. However normally the bank will not increase the tenure beyond the retirement age (normally assumed at 60 years for salaried people and 65 years for self employed people)
- You can consider taking overdraft loans against your savings instruments (insurance policies with high surrender values, Mutual fund units, shares, etc.) to pay for the increase in the EMIs. The advantage of such loans is that for a small fee you get an option to draw upto the limit. You pay interest only for what you actually utilize and as long as the total amount does not exceed the limit you do not have to pay off either the interest or principal. Off course all this is only a temporary palliative. You should prepay the loan from your future savings or from the drop in your EMIs as and when the interest rates drop again.
- If neither of the above options are feasible than you can consider approaching your existing lender to provide an additional loan on the security of the same house. You are likely to be eligible for the additional loan as house prices have gone up significantly in the last 2 years and your income would also probably have gone up.
- Neither of option c or d are great options as you are actually borrowing money to repay your existing borrowings which is fiscally imprudent. Hence they must be exercised after due caution.
The best option off course remains to rejig your budget and cut out the non essential items and manage within your monthly income.
Best of luck with this difficult exercise.
Harsh Roongta is the CEO of Apnaloan.com. He can be contacted on harsh@apnaloan.com
Let us take an extreme example to understand the magnitude of the change. The interest rates were the lowest in the last quarter of 2003. So let us assume the loan was taken at the lowest possible rate and work out the impact after taking into account the increases that have happened in the intervening period.
Loan amount : Rs. 10, 00,000
Date of disbursement : January 1, 2004
Floating interest rate at inception : 7% p.a.
Tenure at the inception : 20 years
EMI at inception : Rs. 7,600 per month
Changes in Interest rates :
Date Interest Rate EMI increased to
January 1, 2005 7.50% 8,045
July 1, 2005 8.00% 8,336
January 1, 2006 8.50% 8,627
April 1, 2006 9.00% 8,919
July 1, 2006 9.50% 9,213
February 1 2007 10.50% 9,800
April 1, 2007 11.50% 10,399