Taking a home loan and getting a loan sanctioned is just one part of the story. The second part of the story is managing the home successfully and planning it in such a way that you save more money.
Today, we will tell you the second story because it is equally important to make your home loan more cost effective. Over the recent years, it has been seen that the housing sector is getting a lot of buzz, especially since loan rates have seen a lump. This has been attracting buyers from around the country.
In this article, we will tell you more about how to choose and make the most of the home loan offers that are flooding the market.
MCLR Rate
MCLR is expanded as Marginal Cost of Funds Based Lending rate, is nothing but the lowest possible interest rate that a bank can offer. Therefore, a bank, in most cases cannot lend lower than this, unless in exceptional cases as mandated by the Reserve Bank of India (RBI). In simple words, it is nothing but the ‘cost’ incurred by the bank to lend a certain sum of money and this is defined in terms of a percentage.
The RBI launched this this system of setting home loan rates on April 1, 2016. MCLR has now replaced the earlier system of setting interest rates, which was the base rate system.
Important Points to Note when you are Applying for a Home Loan
Shop for Interest Rates:
Those who are applying for loans for the first time should make an effort to look around for the best interest rates. This should be the first step that is taken and should be done before choosing a prospective lender.
Compare, Compare and Don’t Forget to Compare:
Make sure you compare. It is very important to compare all the interest rates that are offered in the market. Buying a home is a big decision and this should not be made in any kind of haste. Don’t wait around, sit down and do a good comparison before you lock in on a home loan scheme.
MCLR Rates:
Those who currently have a loan home and are paying under the MCLR rate scheme, will tend to notice that their interest rates are slightly higher than what is being offered by some of the other banks. In such a case, the smartest option is to make a switch but before that it is important to check the cost involved in doing the same.
Timing:
Of all the things that matter, the magic of timing cannot be ignored. The lending rate that is offered to a particular borrower will depend on the time at which he/she has actually availed the respective loan.
RBI has made a decision to link base rate and MCLR rate and this will be implemented from April 1 , 2018. For those who are still under the base rate system, there is no need to feel bad because the change will happen again this year.
Cutting Down the Home Loan Burden
Taking the responsibility of a home loan is not a joke. This holds true especially for those who single handedly take a home loan. Though the burden is no lesser in case of joint home loans, it is just a little bit less stressful when you have that someone to share your burden with.
When interest rates keep fluctuating, it can get a tad bit more difficult from the perspective of the borrower. However, things can get better. For example, from the beginning of 2015 till the end of 2017, the rates on new loans slumped by around 2%. On the other hand, some banks have also been increasing rates.
Though it may seem difficult, you can easily cope with things if some effort is made to plan and execute. Let us take a look at some strategies:
Remember, You Can Always Choose a New Lender:
If you feel like you are trapped by the lender, let loose, you do not have to stick on. There is always the option of refinancing your home loan. First try to negotiate with your bank and lender but if things don’t go your way, go for a new lender. This may be a good option because there are many lenders that are offering lesser and more economical interest rates in the market. On the other hand, do not blindly go for a new lender because it involves a foreclosure charge and a set of other charges. This option is only as the last resort.
Try to Negotiate:
There is no harm in trying to negotiate as this is one of the best ways to get a lower rate of interest. So, here is the deal, negotiate, negotiate and negotiate. Though banks may charge a certain rate change fee, it will may be worth it in the long run. Post negotiation, many banks are willing to reduce rates by at least around 0.5% to 2%, though this figure may vary from lender to lender.
Make the Loan Repayment Period Longer:
This may not be a very wise option, but when nothing works out, it can be the last thing that can be chosen. This is because though in the short-term this will reduce the EMI burden, you will only be paying more on the home loan overall.
Pay a Higher EMI:
Through this is easier said than done, paying more is a good way to reduce the overall cost of the loan. This is a practical option only if you have enough funds at your disposal for the respective payment. If not, you have to look for other options.
Prepayment of the Home Loan:
Making a prepayment is one of the best strategies you can go for if you have some extra cash at your disposal. However, before jumping into this, check how much it will cost you as far as pre-closure charges are concerned.
On a Concluding Note
A home is a dream and to make that dream come true you must work hard. Make sure you are well aware of what you are getting into and planning is essential.
About Vanshika Kumari
Vanshika Kumari is a financial writer who writes content on Home Loan Investment tips and information in India like Home Loan Interest Rate, Home Loan Eligibility, Home Loan Balance transfer tips, Real Estate Sector and many more.
Thank you so much for the great article, it was fluent and to the point. Cheers.