Home Loan Interest Rate Not Reduced Despite RBI Rate Cut: What Can I Do?

Ans: There will be no pre-payment charge on the partial pre-payment of Rs 10 lakh being made to LIC Housing Finance as it is not being made by transferring the loan to another lender. Yes, you can request LIC Housing Finance to change the fixed rate to the current floating rate but there can be some charges for such conversion.

Ans: The increase/ decrease made to your interest rate would depend on your interest cycle as agreed upon with the lender. There is no mandate upon the bank / financial institutions to pass on the advantage/ disadvantage to you immediately. However, in your place I would be relieved if the interest rate has not been changed lately since last 3-4 rate revisions has consistently been on the upward side.

For your other loan, a lender is under their rights to ask for your bank statement for the last 6 months and foreclosure charges are also a policy they are allowed to charge.

In future I would suggest going through the terms and conditions offered by the lender closely since they are liable to disclose such charges. This can help you take a well-informed decision on choosing your lender. 

Ans: It's better to stay with ICICI and negotiate the interest rate down to 10.35% rather than taking a personal loan. The reduced rate will lower your EMI and interest costs without the added burden of a new personal loan. Additionally, this approach helps you keep your land documents as collateral, which is typically safer than unsecured personal loans.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You took a floating-rate home loan from Axis Bank at 8.5% interest.
You prepaid Rs 5 lakh within five months, reducing your outstanding amount to Rs 24 lakh.
RBI reduced the repo rate, but Axis Bank refuses to lower your rate to 8.25%.
Why Your Interest Rate Is Not Reducing
Banks do not always pass repo rate cuts immediately to all borrowers.
Some loans are linked to MCLR (Marginal Cost of Funds Based Lending Rate), which adjusts slowly.
New loans might be under RLLR (Repo Linked Lending Rate), which reacts faster to RBI rate cuts.
Your loan agreement decides how and when rate cuts apply.
What You Can Do
1. Ask for a Rate Reduction
Request Axis Bank to switch your loan to an RLLR-based loan.
Banks charge a conversion fee, but it might save you lakhs in interest over time.
2. Compare with Other Banks
Check other banks' home loan rates for balance transfer options.
If a bank offers a lower rate, consider switching the loan.
Ensure the processing fee & charges don’t negate the benefit.
3. Negotiate with Axis Bank
If you have a good repayment record, negotiate for a lower spread or margin.
Mention that other banks offer better rates, increasing your bargaining power.
4. Make Partial Prepayments
If you have extra savings, consider small prepayments to reduce interest burden.
Prepaying reduces the principal, which lowers total interest paid.
5. Use a Home Loan Overdraft Account
Check if Axis Bank offers a home loan overdraft facility.
You can park surplus money and withdraw when needed, reducing interest payments.
Best Action Plan
Contact Axis Bank and request a switch to an RLLR-based loan.
Compare other banks for balance transfer options.
Negotiate for a lower spread if staying with Axis Bank.
Consider prepayments to reduce long-term interest costs.
By taking the right step now, you can save a significant amount on interest payments.

Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment