Brijesh Parnami | Posted at: Jan 12 2015 1:20AM | Tribune India

A home loan repayment, as we all know, is a major liability that often takes several years of your earning life. Sometimes, unforeseen circumstances such as a medical emergency in the family or a job layoff may turn out to be a heavy drain on your resources and may offset your calculations of repaying the loan in the scheduled phased manner. For a person who has a 10-year repaying timeline, a sudden layoff and downturn in the industry, may mean he or she may find it difficult to keep making the same repayment every month. Refinancing to a lower mortgage interest or a facility that enables you restructure your monthly instalments can come to your rescue in such situations.

It can also be to your advantage to refinance to a lower mortgage interest rate even when you are managing your finances well. This can enable you to invest in another lucrative venture or buy another property by sparing a greater monthly income at your disposal.

Qualifying for a lower interest rate on your home loan will save you money over the long haul. A lower rate of interest can also lower your monthly payments, which may help get you out of a financial bind if unexpected hardship strikes. If you find yourself falling behind in making your mortgage payments, being honest with your bank or financial institution may get you a lower interest rate without you having to refinance a new loan.

Often, in the absence of awareness about the facility of restructuring interest rates or lack of good advisors, people struggle with financial strains and continue to suffer hardships. Some, even default on their payments, or have to sell major assets to make ends meet.

All you need to do is gather your documents and speak to your bank. Most banks are ready to help create more congenial conditions that will allow you to pay back their loans successfully over the long run. As much as you do not desire to default on your payments, your bank too would be keen to ensure that the loan repayment is made smoothly.

Banks are also keen to make you stay with their services, rather than force you out to another lender.

Talk and negotiate with your bank

Speak to your bank executives and inquire about provisions to reduce your interest rate or make other adjustments to your loan terms as a way to decrease your monthly payment. Discuss your financial constraints and explain how you plan to go about the new repayment arrangements. Be prepared before entering into a discussion by making inquiries with other banks about current mortgage rates they are offering to individuals applying for home loans. This will help you be aware of the market rates and give you a negotiating handle.

Provide evidence of financial constraints

Meet your bank executives and provide them information and evidence about the financial problems you are facing lately. In case of a medical emergency, provide your medical bills to make evident the financial drain you are experiencing. Keep your documentation complete and write to the bank formally, if required with the request.

Not just proof of the additional financial burden, also keep ready the evidence of all your payments and expenses you incur every month vis-a-vis your monthly income to make your case. In case you have suffered a layoff or job loss, also provide proof of the same.

Check all options available

You bank may offer more than one restructuring offer after taking into account the problems being faced by you. If your bank is willing to modify the conditions of your loan, seek all details and terms of conditions in writing. Your lender might offer to lower your interest rate temporarily until you regain your financial abilities and catch up with your payments. Ask for all the conditions in writing at the time of negotiation.

Cite your payment history

If the borrower has a good repayment history, banks are more often than not willing to negotiate the terms of repayment when confronted with a financial situation. Cite your positive repayment history and if needed, also indicate to the bank that you might be willing to shift to another lender if the restructuring doesn’t work out here. In most cases, this will be enough to convince the bank to work out an alternative.

Be proactive about checking rates

Keeping yourself informed pays. Even if your finances are going all smooth, you should be proactive in keeping informed about the prevailing interest rates. Many banks continue to discriminate between old and new customers, charging the existing ones a higher rate than that being offered to new borrowers. If you are being charged a higher rate, ask your bank to convert it to the rate applicable to new borrowers. With the RBI abolishing the prepayment charges that were levied by banks, institutions or NBFCs, switching from one bank to another is not at all costlier now. It has boosted the spirit of the borrowers for going ahead with the negotiation discussion with their existing lenders.

The author is CEO, Destimoney Advisors. The views expressed in this article are his own

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