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Date : Jul 16, 2009

Question

I have taken mortgage loan from India bulls for 18L in Dec 2006, initially the interest rate they said was 14.75% and the emi started from Jan 2007 however within couple of months in march 2007 they increased the interest rate to 15.25 and 16.25 in April 2007 and 17.25 from June 2007. Again they increased to 17.85 in Aug 2008 and finally to 19.35 in October 2008. I do understand that due to very high inflation rates in 2008 they might have increased me, but I dont understand why they increased in 2007 when the market conditions were absolutely good. When I inquired them they said due to high PLR rates they increased the interest rates. I have even seen with some of their bank officials in Hyderabad office that they dont charge same interest rates to all their customers, they charge different rates for different customers. A customer will be having lower interest rates in the begining of their loan and gradually like the case in mine will get increased. Sir, I just want to know if this is right for banks to charge different interest rates to its customers. After requesting them many times they just decreased me with 0.5% in June 2009. Now my current interest rate is 18.85%. I thought of going for pre-payment but they insist only 25% of amount without any charges and for the rest amount it is 5.1% charges. Kindly suggest me with all the option I can or should do to come out of this vicious circle. Thanks, Buchi Reddy R.

Answer

Since you have taken a LAP loan at a floating rate of interest, it is anyways subject to change. You should explore the option of changing your LAP loan lender if you have maintained a good track record of repayment on the loan. If you have surplus funds and you can also pre-pay a part of the home loan as it will reduce the monthly EMI burden. Quite a few banks do not charge pre-payment penalty if the loan is prepaid partially. The definition of what constitutes partial pre-payment varies from bank to bank. This will ensure savings in pre-payment penalty and at the same time help you to save on high interest costs on a substantial portion of the loan. However, before you decide to pre-pay a home loan, it is in your interest to first clear off all unsecured dues like credit card dues and personal loans. Also, make sure that you have some money set aside to meet emergency expenses. Tax calculation can change the view on pre-payment. You can also check the 'Should I switch my loan' calculator on Apnaloan to check whether it makes sense to change the lender.

 

 

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