Whenever the India’s largest
bank State Bank of India (SBI) cuts interest rate on housing loans, what
happens is to be a rate war. Mostly the grasp here is that rather than bringing
down the base rate to which all housing loans are associated which may benefit
both existing and new users, but in past bank chooses to bring down the spread
which meant that just new customers stand to take benefit. The Home loan
Interest rates have two components- base rate and spread. Base rate is the rate
below which the bank could not lend whereas spread is the edge based on the
borrower and product-specific factors. In SBI Home Loan, for instance, even as
the existing customers would pay 10.5% interest, of which 10% counted as the
base rate and 0.5%, is the spread, new customers would end up paying only 0.25%
as a spread or 10.25% as rate of interest.
The greatest option
accessible is to shop for the best loan rate. A big mass of housing finance
taken during the period of 2009-2012 comprised dual rate finance and the shift
is likely to provide advantage many customers as they mostly switching to
floating interest rate which may not acquire any prepayment penalty.
With the SBI indicating a
rate war, home loan borrowers may finally be able to shift without paying a
penalty. Of course, shopping for cheaper interest rates has been probable for a
while now, but it wasn't possible because of the comparable rates that most banks presented. This seems
set to change now.
Get over the disinterest is
the initial step to benefit from portability. Switching a house loan may not as
exceptional a task as mostly think it to be. Housing finance or Property Loan
is the major debt a person have, but it does not mean that the effort occupied
in a switching it to other lending institution will be as immense. The
procedure is more comprehensive than small-ticket debts, but the
representatives from the new lender would assist a person during the procedure.
The effort that a customer can make would be limited to negotiating the best
rate.
Though, people should keep
in mind the outstanding term of loan before going to switch. If the loan has
less than ten years, benefit cannot be as impressive. Also, if the rate of
interest is lowered, a person must not reduce the EMI as this would mean a long
tenure and high interest rate. If a customer is not concerned to go for rate
shopping, then he/she can try to negotiate with a current bank. Choose the best
lender providing lower spread above the base rate if the two lenders offering
same effective rate