How should you bring down your home loan EMI?
Amrendra Kumar wanted to lower the equated monthly instalment (EMI) on his home loan. The 34-year-old hair transplant specialist and director of DermaClinix, a Delhi-based skin and hair care clinic, had taken a home loan from Housing Development Finance Corp Ltd (HDFC) in 2014. He was paying an interest rate of 9.45% on his outstanding home loan amount of ₹80 lakh. Considering the falling interest rate environment, Kumar approached HDFC for a lower rate.
Initially, the response was negative. With the help of a direct selling agent (a loan distributor), who offered to transfer the loan, Kumar realised that he could get a loan at 8.5% per annum from Axis Bank Ltd. While he was in the process of arranging the documents, the agent told him that Axis Bank was willing to offer him loans at 8.15%. But Kumar had to arrange the documents immediately since it was a limited period offer.
When Kumar approached HDFC, the lender asked him to wait for up to 15 days. Due to the delay in getting the documents, he could not avail of the special offer of 8.15%. However, he still wanted to transfer the loan to Axis Bank, since it was offering an interest rate of 8.5%, without any processing fee. In the meantime, HDFC made a counter offer to Kumar. It first offered to reduce the rate to 8.95%, with a one-time fee of ₹5,750; and then to 8.7%. But, when the doctors insisted on moving, HDFC agreed to match the Axis Bank rate, with a fee of ₹575.
There is stiff competition among lenders to lure customers. Therefore, if you are paying a higher EMI, here is what you should do:
NEGOTIATE
Negotiate well with your existing borrower before deciding to transfer home loans. 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.”
INTEREST RATE
Led by State Bank of India (SBI), other banks and housing finance companies, too, cut their rates. For instance, HDFC reduced its home loan rate from 9.10-9.15% to 8.65-8.75%. Learn of 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 ₹1,000 and ₹1,500. 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 for a loan transfer. “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 the 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 the registration deed.
DURATION