Home loans: it’s time to renegotiate the terms of your loan

By Raj Khosla

As the second wave of the pandemic hits India, it’s time to review and rebalance your personal finance portfolio. Although different people have different priorities, saving extra money for emergencies is a wise move for everyone. With several monthly obligations such as EMI for home loans as well as essential daily expenses, the benefits of EMI load reduction cannot be overstated.

Lower interest rate
Over the past year, mortgage interest rates have bottomed out and are currently at their 10-year low. With a little financial engineering, you can actually reduce your EMI. So, whether you had a loan before October 2019 or have a mortgage that is greater than 8.5% per annum, there is a good chance of getting an interest rate concession of 100 basis points. . However, in the event that you have opted for the recent RBI moratorium, it will be difficult to finalize a refinance option.

Contact the existing lender
It is always recommended that you contact your existing lender first and apply for a rate concession based on your existing relationship and repayment history. Plus, you don’t need any documents to initiate claims with the current lender. You can contact your bank online and share your request, somewhat forcefully, i.e. sharing competitive market information. Additionally, if you are managing a fixed rate variant or an old MCLR linked loan, switching to an external benchmark such as the repo rate will reduce the interest rate. The lender will charge a nominal fee for the conversion and the new rates will be allocated in accordance with the current pension rate.

Renegotiating with an existing lender is always the priority option. An illustration: a loan of Rs 1 crore at an interest rate of 8.5% and an outstanding duration of 15 years, carries an IME of Rs 98,474. When revalued to 6.75%, the EMI is 88,491 rupees. A monthly saving of Rs 10,000.

Apply for a loan transfer
If the rate reduction request was not accepted by your current bank, find another suitable lender. Look for post-disbursement services and responsive digital customer service in addition to the lower interest rate. Clearly communicate the terms and requirements of your loan with your new lender. A new loan agreement will be provided and a processing fee and administration fee will apply.

So, do the math, calculate the savings and specifically inform the lender of your intention i.e. whether you are looking for an EMI reduction and term extension, or a supplement for debt consolidation or debt reduction. main.

Previous benchmark example: If your age allows a five-year extension of the term from 15 to 20 years, the Rs 1 crore loan at 6.75% will mean an IME as low as Rs 76,036, which will result in a Huge monthly savings of Rs 20,000.

Home loan reloading with leverage
EMI for personal loans, auto loans are priced at higher interest rates (9-12% per annum) compared to 6.75% for home loans. Carrying over credit card balances is one of the most expensive sources of funding (18% to 30% per year).

If age and income permit, an IME of Rs 98,847 will secure a loan of Rs 1.3 crore @ 6.75% with a term of 20 years. From where a release of Rs 30 lakh to align the most expensive installations, then a possibility of surplus for a contingency fund.

Expect obstacles from Covid
Due to the containment, the banks work with limited physical force. It is not possible to personally visit a bank to share the balance transfer request and file a request for a No Objection Certificate (NOC). In addition, the new lender must complete a property appraisal and legal audit before authorizing sanctioning of the loan. All of these steps require manual intervention. So be prepared for specific Covid delays.

The writer is founder and CEO of MyMoneyMantra.com