Interest rates on home loans have come down. But how easy, or difficult, is it to take advantage of these cuts? We spoke to some people who tried to reduce their EMIs
Ashwini Kumar Sharma, Vivina Vishwanathan | Last Modified: Tue, Mar 28 2017. 09 38 AM IST | Livemint.com
Early this year, banks and housing finance companies reduced interest rates on home loans. The falling rates encouraged Dr Amrendra Kumar, 34, hair transplant specialist and director of DermaClinix, a Delhi-based skin and hair care clinic, to approach his lender HDFC Ltd to revise the interest on his outstanding home loan of Rs80 lakh. His colleagues Dr Kavish Chouhan (who had a Rs60 lakh loan from HDFC) and Dr Jyoti Gupta (who had a Rs.30 lakh loan from Deutsche Bank) too approached their lenders. They were paying interest rates in the range of 9.45% and 9.55%.
As the loan amount was high, lower interest rates would mean a lot of savings for all of them.
They approached their lenders to revise the rates but did not get a positive response and decided to approach other lenders. They took help from a direct selling agent (a loan distributor), who offered to transfer their loans to Axis Bank Ltd, where they would have to pay 8.5% per annum. All of them decided to transfer the loans. While they were arranging the documents, the agent told them that Axis Bank can offer 8.35%, which could even go down to 8.15%, but they would have to get the documents quickly for that.
When Gupta approached Deutsche Bank, it gave her the required loan and foreclosure documents in a few days. But when Kumar and Chouhan went to HDFC, they were told to wait for up to 15 days. Due to delay in getting the documents, they could not avail the special offer but they wanted to transfer their loans to Axis Bank, as it was offering 8.5%, without any processing fee.
Deutsche Bank did not make any counter-offer but HDFC did. It first offered to reduce the rate to 8.95%, with a one-time fee of Rs5,750; and than to 8.7%. But, when the doctors insisted on moving, it agreed to match the Axis Bank rate, with a fee of Rs575. An Axis Bank spokesperson said: “Customers are offered lower home loan interest rates on the basis of their credit profile. Credit score and credit history are important parameters in the credit appraisal process.”
Based on the their experience, it seems that there is stiff competition among lenders. Therefore, borrowers should negotiate well before deciding to transfer home loans.
Things to know
Offerings: Led by State Bank of India (SBI), which cut up to 90 basis point from its lending rates, other banks too cut their rates. Housing finance companies too reduced their lending rates. For instance, HDFC Ltd reduced its home loan rates from 9.10-9.15% to 8.65-8.75%. One basis point is one-hundredth of a percentage point.
Charges: Shop around and know the charges and fees that you may have to pay for transferring a loan. According to an HDFC spokesperson, there is no selective process for doing so and old customers can move to new rates by paying a small conversion fee.
Beside lenders’ websites, agents and loan aggregator websites can also be used to compare interest rates and charges. Typically, stamp and administration charges are in the range of Rs1,000 and Rs1,500. As mentioned above, many lenders offer “nil” processing charges too. Make sure to ask if the lender wants you to buy property insurance.
Documents: You will need to have the documents in place. “The documentation required for balance transfer and purchase of a new home include proof of identity, proof of residence, latest 3 months salary slip (for salaried customers), tax returns for the last 2 years (for self-employed customers) and last 6 months’ bank statements. Home loan sanction turnaround time is 3-5 working days,” said the Axis Bank spokesperson.
“The same set of documents are required that would be needed for any new home loan. As the customer is moving from another bank to HDFC, we would need a list of documents in possession of the customer’s existing bank. We would also need the outstanding loan amount from the customer’s bank,” said an HDFC spokesperson.
Remember to arrange your Know Your Customer (KYC) documents such as identity and address proofs. Proofs of income can include Form 16, income tax return and salary slips along with bank statements, and the complete chain of property titles along with registration deed.
Duration: “If the customer has taken a loan for a project that we have already approved, then the processing time will be much faster. The duration for disbursement also depends on the documents customer provides,” said M.G. Vaijinath, chief general manager-real estate and housing department, State Bank of India. Also, it depends on the bank you are dealing with.
While transferring a home loan to lender who charges a lower interest is financially beneficial, the process is not easy. “We had to make several requests via emails and on phone, and about 4-5 visits to HDFC. At last, we had to settle with HDFC, forgoing the 0.10% lower interest that Axis Bank was offering, as it was taking too much time,” said Chouhan. A loan transfer usually takes 2 weeks, but in some cases it can take more than that, as was the case above.
Ideally you should first approach your existing lender, and check if it is ready to reduce the interest rate. Also enquire about the charges. Ask for some fees to be waived. Simultaneously, approach other lenders and use your credit score to bargain. Compare offers of your existing lender with new lenders’ carefully. Do your math and only if the long-term benefits are substantial, decide to transfer your home loan.