Reduce your home loan burden

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