I took a home loan at a floating rate of interest. But as is the common practice, banks increase the rate of interest immediately after the rate is increased but when rates go down they ask for conversion fees. Should we pay this fee? What are RBI’s guidelines in this regard?
— Subroto Pandit First, changes in RBI policy rates do not automatically mean changes in the lender’s reference rates for lending. But it is a common practice among lenders to increase their reference rates more quickly by citing RBI increase in policy rates as an excuse. It is a known fact that lenders are hesitant to reduce the base rate/PLR when interest rates fall and hence consumers rarely get the benefit of reduced interest rates as quickly as they should get. So, the benefit of lower rate will accrue to you as and when the lenders reduce their base rate/PLR and not otherwise.
The current (March 2015) competitive rate in the market is around 10.10%to 10.25%. You can check with your bank if it is willing toreduce the interest rate to 10.10% to 10.25% (their current floating rate) even if it means paying a fee of 0.28% (inclusive of service tax) on the disbursed amount. This will avoid the logistics of transfering documents from one lender to another.
If your bank is not willing to reduce the rate of interest to 10.10% to 10.25% pa, you can evaluate the option of switching your loan to another lender.
Since the NHB has already instructed housing finance companies not to levy prepayment charges in respect of floating loans, you will not have to pay any penalty for shifting such loans. However, you may have to pay some processing fee to the prospective lender. In fact, most lenders will agree to take over the loan from the existing lender without any significant processing fees. So effectively there will be no charge for shifting the loan to another lender.
You need to have a good track record of paying EMIs on time to be able to get an offer from another bank to take over your existing loan. I took a home loan from a bank for a 3BHK under construction flat of area 1,310 sq ft. Barring the final disbursement, the rest of the amount has been given. Now I want to change to a flat of size 1,450 sq ft in the same project and the builder has agreed to it and has given me an estimate of the additional amount that I have to pay. But the bank has refused to give permission for this shift. How can I make the bank agree to my terms?
— Sanjiv Arora There is no such thing as a transfer of loan or change of property under the existing home loan. You will have to foreclose the loan that you had taken and apply for a fresh loan. As for the new unit that you are taking in exchange for your old property, it will be easier for the same bank to do this. But you can also get a loan from another bank on a document of exchange which you will have to sign with the builder. The new bank will pay off the previous bank in that case and provide you an additional loan if you so desire. What is a composite loan and how does a bank disburse such a loan. What documents do we need to submit to avail a composite loan?
— Sanjit Sharma A composite loan is a loan taken for self-construction of a house. The loan is given to finance the cost of land as well as cost of construction of property. The banks will require documents in respect of proof of income, identity, residence for the home loans and documents relating to title of the property being purchased.