Thursday, August 9, 2012

Time to Get a Better Home Loan Rate | Home ... - Personal Finance


Now that SBI is aggressively marketing it?s home loans and reducing the interest rates, it?s time to consider getting a lower rate for your existing home loans. The big question is what to consider before moving your existing home loan to another bank offering lower interest?. Here's some pointers on ET

  • If your loan has less than 10 years to go, you may not gain much.
  • Compare cost of converting loan to a lower rate with your existing bank, with the cost of transfer to a new bank.
  • When rates are cut, don't reduce the EMI, but lower the tenure. Lower EMIs?mean longer tenures and higher interest costs.
  • Factor in the processing fee. Most lenders charge 1% to 1.5% of the loan outstanding.

Shopping around for cheaper interest rates on existing home loans has been possible for a while now, but now that pre-payment penalties have been abolished, it may be worthwhile to check out the best home loan rate available for you.

More on Home Loans

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With SBI slashing home loan?rates this week, and other banks facing a "cut rates or lose market share" scenario, home loan borrowers may finally get an opportunity to really take advantage of the "no prepayment penalty regime", a year after it was put in place.

Three years ago, when SBI launched a rate war with an 8% teaser rate offer, stiff pre-payment penalties deterred many borrowers with other banks from making a switch. But by the time pre-payment penalties were abolished in 2011, rate wars had abated, leaving borrowers with no attractive options for a switch.

Now, more such options are likely to open up as other banks consider a response to protect their market share.

Banks often deny lower rates to existing customers by playing around with the "spread". For example, SBI has cut rates only for new borrowers.

Don't be in a hurry. As the festival season approaches, more banks may offer such "special" rates.

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Source: http://personalfinance201.com/Home-Loans/time-to-get-a-better-home-loan-rate.html

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