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You might have done all comparisons and zeroed on the best <keyword id="6354730" type="UNKNOWN" weightage="80" keywordseo="Home-loan">home loan</keyword> interest rate. But did you go through fine print and read about “other charges” before making the big purchase? 
 
It is important to go through all charges as the sum of all the “other charges” is sometimes big enough to burn a hole in your pocket. And as the wise men say, knowledge and awareness are the keys to avoid getting ripped off in real estate transactions. So, make use of the below mentioned tips and find way out of the loan fee maze. 
 
Application fee 
This fee is collected while processing loan application whether your loan is sanctioned or not, and it is non-refundable. In case you change your mind after applying for a loan, this application fee will be the minimum cost you will have to bear. 
 
 Processing fee 
This, too, is non-refundable and has to be paid with loan application. However, many banks offer the option of paying a part of this fee along with the loan application and clear the balance fee before disbursal of the loan. Depending on the organisation, this fee can either be a flat fee or a percentage of the loan. It is up to the lender to provide a relief on this fee. Your negotiating skills can definitely help here to have this fee waived off or minimized. 
 
 Mortgage deed fee This is one of the major charges you need to cough up when you opt for a home loan. It is generally a percentage of the home loan and forms a major chunk of the total fee amount you need to pay for availing the loan. Some institutions waive off this charge to make the home loan look more lucrative. Before you make this as an evaluation factor to choose the lender, check for the <keyword id="6371181" type="UNKNOWN" weightage="80" keywordseo="interest-rates">interest rates</keyword> or any other charges wherein this may be compensated. 
 
 Legal fee 
Institutions generally hire lawyers to verify the legal status of the property. The fees charged by the lawyers for this is passed on by the institutions to the clients. However, if the said property has already been legally approved by the institution then this charge is not applicable. You must check with the institution to find out if the project wherein you are investing has already been approved by them or not. Else, you will end up paying the legal fee. 
 
Prepayment penalty 
When a borrower pays the entire or a part of the outstanding loan before the due date, it is termed as prepayment. Prepayment results in an interest rate loss for the lender. Hence, a penalty is charged to cover this loss to some extent. These charges vary according to the lender and the type of loan availed. However, the Reserve Bank of India has directed all the banks not to charge prepayment penalty on home loans that are on floating interest rate basis. For fixed rate home loans, however, there is a prepayment penalty charged at a flat rate, which is typically around 2% of the prepaid amount. So in case you have home loan pre-payment in mind, this factor must be considered. Also while evaluating, check if a floating rate of interest is more feasible for you. 
Commitment fee 
Some institutions levy a commitment fee in case the loan is not availed within a stipulated period of time after it is processed and sanctioned. It is the fee charged by a lender to a borrower for an undisbursed loan. For example, in case of a construction linked loan, the project completion stages are crucial for disbursal. The lender keeps this line of credit open for you but charges a specific amount so that you can avail it in the future.This fee is typically charged as a percentage of the difference, between amount sanctioned and amount disbursed. 
 
(Rajiv Raj is the Director and Co-Founder of <a href="http://www.creditvidya.com/">www.creditvidya.com</a>) 
 
(Image: Thinkstock)

Don't let 'other charges' keep you trapped in the home loan maze

Ashwini Dutta has a <keyword id="6354730" type="UNKNOWN" weightage="40" keywordseo="Home-loan">home loan</keyword> of Rs 40 lakh that he availed at an <keyword id="37018" type="UNKNOWN" weightage="40" keywordseo="interest-rate">interest rate</keyword> of 11.25%. The tenure of his loan is 15 years. After making payments for 3 years, he wants to refinance his home loan for the remaining tenure at an interest rate of 10.50%. Will this be a wise decision? Let us check out. 
 
Refinancing one’s home loan essentially means that a new loan is being taken to pay out your existing mortgage. Here are four good reasons why refinancing could be a good idea. 
 
Interest rate is crucial. 
This is the key factor to be considered while refinancing one’s home loan. If you are getting a difference of 0.75-1% between your existing rate and the rate of refinancing, you will end up saving money in the long run. 
 
Switch from floating rate to fixed rate of interest benefits you. 
If you are currently on a floating rate of interest and getting the chance of refinancing at a lower rate, you may want to lock yourself in the low fixed rate. This will protect you from interest rate fluctuations that happen due to the impact of macroeconomic factors. 
 
Refinancing can shorten your loan tenure. The loan tenure is inversely proportional to the <keyword id="6357050" type="COMPANY" weightage="40" keywordseo="EMI">EMI</keyword> payments you are making. This means the higher the tenure, the lesser the amount of your EMI and vice versa. If you have had a substantial jump in your salary because of a job switch, promotion, etc., you can choose to refinance your mortgage for a shorter tenure and increase your EMI. However, this should only be done if your EMI outflow is less than 50% of your monthly income. 
 
You can deploy money elsewhere. 
If you are planning to make another investment or start a business, cashing out on some of your home equity could be a wise financial move. If you are the kind of person who can manage your debts responsibly, refinancing your home loan can really pay off well. 
 
Refinancing your mortgage will save you money, but one should not forget that refinancing comes at a cost. There are two parts to the cost of refinance. First, there is the pre-payment penalty, which may be 1% for a public sector bank and up to 3% for private sector banks. The loan processing charge of the new bank is the second part of the cost that should also be considered as a high processing fee may make the new loan quite expensive. Instead of taking a hurried decision about a refinance, consider your options carefully and take a decision based on your abilities and your financial goals. 
 
Rajiv Raj is the Director and Co-Founder of <a href="http://www.creditvidya.com/">www.creditvidya.com</a> 
Image: ThinkStock

Four
Good Reasons To Refinance Your Home Loan

<ul><li>State Bank of India announced a 15 basis points or 0.15% cut in its lending rates. </li><li>SBI’s one year lending rate will come down to 8.25% per annum from 8.40%. </li><li>After this cut, home loans will become cheaper by 0.35% effective from April 10, 2019. </li></ul> It looks like India’s central bank is having its way, at least with the country’s largest bank. Within hours of Reserve Bank of India (<keyword id="30067" type="ORGANIZATION" weightage="20" keywordseo="RBI">RBI</keyword>) saying that it will ensure that banks will pass on the benefits of interest rate cuts to customers, State Bank of India announced a 15 basis points or 0.15% cut in its own lending rates. The Reserve Bank of India (RBI) today cut its repo rate or the rate at which it lends to banks —by 35 basis points. This is the fourth time the central bank cut its lending rates this year. Since February, it has effectively cut the rates by 100 basis points, but banks has been absorbing most of this benefit. They have passed on only 29 basis point benefits since February. Taking a tough stance today, RBI Governor Shaktikanta Das said, “We are willing to take whatever steps necessary to make sure banks transmit the benefits of interest rate cuts to customers.” And SBI seems to have gotten the cue. “The one year lending rate would come down to 8.25% per annum from 8.40%. This is the fourth consecutive cut in 2019-20,” the bank said. The new rates will be come into effect from August 10, 2019. After this cut, home loans will become cheaper by 0.35% effective from April 10, 2019. “In addition, SBI is offering a repo-linked home loan product with effect from July 1,” SBI said. SBI claims to have transmitted RBI’s rate cut benefits ‘fully’. It said that it has passed on the benefit of repo rate reduction by 0.85% during the current financial year to its customers with limits above ₹1 lakh. With as many as 435 million customers, SBI brings home a fourth of all the deposits made in the country. SEE ALSO <a href="https://www.businessinsider.in/business/rbi-policy-update-asks-banks-to-cut-lending-rates/articleshow/70567837.cms">RBI is pushing India's stubborn banks to cut lending rates</a> <a href="https://www.businessinsider.in/business/rbi-policy-update-asks-banks-to-cut-lending-rates/articleshow/70567837.cms">India's central bank cuts interest rate for the fourth time this year</a>

SBI cuts lending rates and makes home loans cheaper within hours of RBI warning

Even a good loan repayment track record and strong financials can’t make you pay less interest than someone with poor financial credentials. However, when it comes to corporate customers, Indian banks charge interest based on their so-called credit rating. 
 
This, despite the fact that they get less profitability from lending to companies, because of the negotiating powers that these corporates possess and the bad loans that they are capable of making. Then why individuals with high credit score end up paying high interest rates for even secured loans? 
 
The reason is that retail lending, which is just about two decades old in India, does not follow the practices of the developed world and corporate lending, suiting banks to charge high rates from retailers who can’t express their concerns in a strong voice like that of a corporate. 
 
"Loan pricing in India is not only about credit scores, it is about many other things," Saurabh Tripathi of Boston Consulting Group told ET. "But banks should differentiate between good and bad customers. It is administrative convenience not to differentiate between customers. In retail, you advertise one rate and you go to the market. The business has not matured and evolved enough to reach that stage, but it will come there, it's a life cycle." 
 
These credit ratings are assigned by information bureaus like CIBIL, who assign ratings to individuals deciding whether they are trustworthy or are unlikely to repay loan. The ratings range from D to triple A. 
 
In the United States, customers with different ratings are charged with varying interest rates, but this is not the situation in India. 
 
"Retail lending in India is portfolio-based, meaning there is no differentiation in the pricing of the loan," says Pralay Mondal, senior group president, retail &amp; business banking, at Yes Bank. "Banks in India do not lend below a certain threshold of credit rating. Any person beyond that threshold is denied a loan, so there is no case for differential rates." 
 
With credit ratings, banks make sure that there are less chances of bad debts, but despite this reduced risk, banks don’t pass on the benefit to customers by lowering interest rates. This is also partly because of the absence of consumer activism in India, and also because the regulator don’t push banks to end this discriminatory stance. 
 
<a href="http://cdn.publishyourarticles.net/wp-content/uploads/2015/07/loan.jpg">Image source</a>

Individual track records don’t matter much to Banks when it comes to charging interests, here’s why

Today <keyword id="6380214" type="UNKNOWN" weightage="100" keywordseo="credit-score">credit score</keyword> has become an important tool in gauging your ability to repay your credit on time. Be it securing a <keyword id="6354730" type="UNKNOWN" weightage="40" keywordseo="Home-loan">home loan</keyword> or applying for a credit card, if your credit score is low, you stand to lose on all these. 
 
Credit score, popularly known as CIBIL score, is an indicator of your creditworthiness. Credit score of an individual is a number that is derived after studying factors such as borrower’s loan repayment record, outstanding loans against his name, and nature of loans – secured or unsecured. Credit score may range between 300 and 900, and a score above 750 is an indicator of a good credit profile. Nowadays, banks use credit score to decide a person’s loan eligibility. 
 A good credit score provides access to credit. However, if the credit score is poor, typically below 750, or <keyword id="524374" type="UNKNOWN" weightage="100" keywordseo="credit-report">credit report</keyword> of the applicant of a loan has a mention of a default on loan in the past, banks may choose to reject his loan application. Use of credit score is not restricted to only loan approval process. Banks have been using credit score to lure right customers. 
 Banks have shown willingness to offer marginally lower <keyword id="6371181" type="UNKNOWN" weightage="40" keywordseo="interest-rates">interest rates</keyword> to a person with a good credit score. At 11% <keyword id="37018" type="UNKNOWN" weightage="40" keywordseo="interest-rate">interest rate</keyword>, for 20 years tenure for a loan amount of Rs 50 lakh, <keyword id="6357050" type="COMPANY" weightage="40" keywordseo="EMI">EMI</keyword> works out to Rs 51,609, whereas if one gets the loan at 50 basis points lower – at 10.5%, the EMI works out at Rs 49,919, monthly saving of Rs 1,691. A loan applicant with a good score can negotiate with the bank to reduce or waive other charges such as processing fee, prepayment fee. So, to put it simply, a good credit score puts a loan applicant in a rewarding position. Individuals will be better off using credit responsibly. So, repay your loans on time, build your credit score and maintain your credit profile attractively. Because, in observing these factors, you will not only save money, but will also enjoy peace of mind. 
 
Rajiv Raj is the Director and Co-Founder of <a href="http://www.creditvidya.com" onclick="window.open(this.href, '', 'resizable=no,status=no,location=no,toolbar=no,menubar=no,fullscreen=no,scrollbars=no,dependent=no'); return false;">www.creditvidya.com</a> 
 
Image Courtesy: ThinkStock 
 
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Why Your Credit Score Matters?

The festive season is here! It’s time for a new beginning, shopping and celebrations. Almost on a cue, on September 29, RBI Governor Raghuram Rajan announced rate cuts, which prompted few banks to follow suit and lower their lending rates. This is expected to add cheer to the <keyword id="6354730" type="UNKNOWN" weightage="100" keywordseo="Home-loan">home loan</keyword> market and move the almost stagnant realty sector and attract new buyers. 
 However, Mr. Mehta, a customer, is not buoyed by this entire rate cut euphoria; he already has a home loan, which is at a higher rate and there is no way he can benefit from these lower rates. Really? His friend suggested him that he should explore the option of ‘<keyword id="3115202" type="UNKNOWN" weightage="100" keywordseo="Home-Loan-Balance-Transfer">home loan balance transfer</keyword>’ to take advantage of the lower rate regime. 
 
What is home loan balance transfer? 
 
Home loan balance transfer is an option that allows you to benefit from a downward movement in lending rates. Lending rates often change with the market condition. Often in floating rate home loans also, the lender may not lower the interest for the customer or may not reduce it enough even when new loans are available at lower rates. 
 
When one opts for a home loan balance transfer, the entire unpaid principal amount of the loan is transferred from the existing bank to a new bank. Obviously, the new bank will charge a lower interest rate; the bank taking up the loan pays the balance principal amount due to the bank, which originally extended the loan. The customer subsequently pays the EMIs to the new bank at the new rate. 
 
Can a home loan transfer benefit you? 
 This is a crucial question. However, there is no clear yes or no answer to this. A home loan transfer can benefit you only in certain conditions. Even if a bank offers lower <keyword id="37018" type="UNKNOWN" weightage="100" keywordseo="interest-rate">interest rate</keyword> it may not be an economically viable option to transfer a home loan if the <keyword id="25450" type="UNKNOWN" weightage="100" keywordseo="savings">savings</keyword> are not enough to justify the time, effort and cost. Following factors contribute to the decision making when considering whether to transfer a home loan or not; they are: 
 
1. Total Cost 
2. Remaining <keyword id="480160" type="UNKNOWN" weightage="100" keywordseo="loan-tenure">Loan Tenure</keyword> 
3. Outstanding Principal 
4. Time and Effort 
 
In case you are wondering that is there actually a cost involved in making a home loan balance transfer? Yes there is! When you transfer a home loan the cost involved includes the processing fees (charged by the bank taking over the loan), pre-payment penalty (may or may not be charged by the existing lender) and some charges like stamp duty, etc. While pre-payment penalty is generally waived off by most of the banks as NHB and RBI discourage banks from charging it but other charges are unavoidable. Total savings can be determined after considering the total cost involved. 
 
Remaining loan tenure is also a crucial factor; if there is less time left in completion of the loan tenure then it might not be worth making the effort for a home loan transfer. If the remaining loan duration is long, the cost will be amortized over the remaining loan duration else the cost burden will not be justified. Again a bigger principal amount outstanding makes more sense when transferring a home loan because a bigger unpaid amount translates into more savings. Consider this example: 
 
Rohan has an outstanding loan amount of Rs 20 lakh @ 10% and remaining loan tenure of 15 years. If he switches to a loan at 9% interest rate, his yearly savings would be Rs. 14,484 and total savings Rs.217, 260. 
 
Dhruv also has a loan @ 10%, with 15 more years remaining, his unpaid principal amount is 25, 00,000. If he switches to a loan at 9% his yearly savings would be 18,336 and total savings for 15 years Rs. 275,040. 
 
Thus it is obvious that a bigger outstanding principal justifies the cost more due as the total savings are more. Do keep in mind that loan transfer like a new home loan involves time and effort which obviously cannot be measured in monetary terms. You will have to research which bank to transfer the loan to, liaison with your bank and the new bank, submit applications, get documentation in place etc. 
 But before your transfer your loan, be careful. Before approaching another bank, check with your existing bank if they are willing to reset the rate. If the <keyword id="175320" type="UNKNOWN" weightage="100" keywordseo="market-conditions">market conditions</keyword> warrant, most banks would be willing to retain their customers and re-negotiate the loan rate. Even if the new rate offered by your existing bank is not as low as what the competitor is offering, it makes more sense as it involves no processing fee, no pre-payment charges, no running around. 
 
(Image Credits: Indiatimes) 
 

(About the author: Rajiv Raj is the Director and Co-Founder of <a href="http://www.creditvidya.com/">www.creditvidya.com</a>)

Can a Home Loan Balance Transfer Benefit You?

Hopes of a minor fall in <keyword id="6371181" type="UNKNOWN" weightage="40" keywordseo="interest-rates">interest rates</keyword>, especially on <keyword id="6354730" type="UNKNOWN" weightage="40" keywordseo="Home-loan">home loan</keyword>s, were dashed last week after the RBI hiked its key rates in its policy review. Home loan borrowers, especially those crushed by a heavy <keyword id="6357050" type="COMPANY" weightage="40" keywordseo="EMI">EMI</keyword>, have been looking at the RBI for some solace for a while now. 
 
Generally, borrowers can do very little other than prepaying a part of the loan (if they have surplus cash) to reduce the interest burden or increasing the EMI (if they can afford it) to reduce the tenure and therefore, the overall interest paid. 
 
However, some experts believe home loan seekers and existing borrowers looking to switch lenders can consider experimenting with some out-of-the-ordinary home loan schemes. Such loans, which are linked to an overdraft facility, are offered by SBI, HSBC and Standard Chartered, among others. 
 <keyword id="6400347" type="COMPANY" weightage="40" keywordseo="CitiBank">Citibank</keyword> offers a home loan scheme that is a combination of a simple term loan and a credit line facility. However, most people are unaware of the existence of these schemes, as they are not promoted heavily. 
 "Such schemes can prove to be very useful, but the borrower needs to understand the product’s workings carefully before going ahead," says Vipul Patel, director of mortgage advisory firm Home Loan <keyword id="159121" type="POSITION" weightage="40" keywordseo="advisors">Advisors</keyword>. 
 
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	Unlike regular home loans which are standard offerings, features of these products vary with each bank. The only thing that is common among them is the home loan is linked to an overdraft facility. Any surplus money (apart from EMI) you deposit into the account will reduce the principal outstanding (only for the purpose of calculating interest), thus reducing your interest outgo.
You can also withdraw the surplus amount parked in the account, if required, though you may have to pay the applicable transaction charges per withdrawal. Again, it depends on the bank's policy. 
 "The deposits into the account actually offset the interest payable for that many number of days and, as a result, reduces the loan tenure as also the interest paid over the term of loan. This is more tax-effective as interest saved (<keyword id="25450" type="UNKNOWN" weightage="40" keywordseo="savings">savings</keyword>) is not taxable, while income is," says Patel. That is, if you were to <keyword id="47916" type="UNKNOWN" weightage="40" keywordseo="invest">invest</keyword> the amount in fixed deposits, the interest earned would be taxable. If used efficiently, it can reduce both your loan's tenure and the interest paid. <div style="page-break-after: always;">
	&#xa0;</div>
While it may sound like a win-win deal, there is a flipside to these products. Most importantly, they charge at least 0.25% more than a regular home loan. For instance, HSBC's Smart Home's rate is 0.25% higher than its regular home loan. Moreover, some banks also levy an annual fee of up to 1% of outstanding balance or loan amount, which is quite substantial. 
 "You need to carry out a cost-benefit analysis to ascertain whether a simple part pre-payment is better than depositing surpluses," says VN Kulkarni, chief credit counsellor, Abhay Credit Counselling Centre. Instead, it might be wiser to go for banks that charge an <keyword id="37018" type="UNKNOWN" weightage="40" keywordseo="interest-rate">interest rate</keyword> as low as 9.5%, he reasons. 
 
Simply put, you will benefit from these products, primarily if you direct all your savings into this account and are confident of parking a surplus. That means, it is not going to help if you are stretched for paying the basic EMI itself.

You Searched For "best interest rate on home loan" and got 7 results

Don't let 'other charges' keep you trapped in the home loan maze

Rajiv Raj

Four Good Reasons To Refinance Your Home Loan

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SBI cuts lending rates and makes home loans cheaper within hours of RBI warning

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Individual track records don’t matter much to Banks when it comes to charging interests, here’s why

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Can a Home Loan Balance Transfer Benefit You?

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Smart Ways To Manage Your Home Loan Interest Burden

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