The recent spike in home loan rates, now surpassing 9 per cent per annum, has cast a shadow over the financial landscape for many borrowers. Some major banks, such as HDFC Bank and Bank of India have recently increased their home loan rates. With monthly payments stretching budgets thin, a sense of urgency to find relief is understandable.
Negotiating With Your Current Lender: The spread over the benchmark rate can significantly affect the rate of interest on your home loan. If your credit situation has improved since you took out your loan, you can negotiate for a lower spread with your lender, thereby reducing your rate of interest.
Refinancing For Relief In EMI: Refinancing is a powerful tool if you are burdened with interest rates considerably higher than the best offerings available in the market.
Says Raj Khosla, founder and managing director (MD), MyMoneyMantra.com: “By refinancing your loan, you can secure a lower rate of interest, leading to reduced monthly payments and a lighter overall interest burden. While processing fees and legal charges are associated with refinancing, the long-term savings often outweigh these initial expenses. It’s crucial to weigh the cost-benefit analysis carefully, thus ensuring a substantial reduction in interest rates to justify the process financially.”
Aligning Yourself With The New Benchmark Rates: A key shift in the financial landscape since late 2019 has been the adoption of the repo rate–currently at 6.5 per cent–as the benchmark for floating home loan rates. This moves away from older benchmarks like marginal cost of funds lending rate (MCLR). The base rate also means that your loan is now more responsive to economic fluctuations. If your loan remains tethered to an outdated benchmark, you could be overpaying. Transitioning to a repo-linked loan could not only streamline your mortgage with current economic realities, but also potentially lower your interest burden.
Prepayments: Borrowers who have some amount of financial flexibility can resort to prepaying their home loan to significantly reduce their total interest cost, while simultaneously shortening the loan tenure.
Adds Khosla: “Even modest additional payments can have a pronounced effect over time, lessening the total amount of interest paid. This strategy not only accelerates debt repayment, but also strengthens your financial resilience in the long run.”
Navigating the labyrinth of high home loan rates requires a proactive and informed approach. By understanding the nuances of your mortgage, from the benchmark rate to the specifics of your loan spread, and by considering strategic moves like refinancing and prepayments, you can not only manage, but potentially overcome this challenging financial environment.
