Hello sir my housing loan account is with bank of india where my emi starting was 7.25 percent before 3 yrs now it is been increased to 9.75 percent
I regularly ask bank official about the increased rate of interest but they tell it is becos of increasing rapo rate
And replies since I am a gold costumer of bank my EMI is reduced to 9.25 percent
I feel this is also very high
Expert please advise
Ans: Thank you for sharing details about your housing loan situation. It is indeed challenging when interest rates increase, impacting your financial planning. Let’s evaluate your current scenario and explore potential solutions to manage your housing loan more effectively.
Understanding Interest Rate Fluctuations
Interest rates on housing loans are influenced by various factors, including the Reserve Bank of India's (RBI) repo rate. When the repo rate increases, banks generally raise their lending rates. Over the past three years, your interest rate has increased from 7.25% to 9.75%, reflecting this trend.
Evaluating Your Current Rate
Although you mentioned you are considered a gold customer with a slightly reduced rate of 9.25%, this rate still appears high. Considering market trends and available rates from other financial institutions, it is crucial to assess if you can secure a better deal.
Steps to Consider for Managing Your Housing Loan
1. Refinancing Your Loan
Refinancing or transferring your loan to another bank offering lower interest rates could be beneficial. Here’s how you can proceed:
Research: Compare interest rates offered by various banks and financial institutions. Look for promotional offers and rates for balance transfer loans.
Calculate Savings: Evaluate the potential savings by considering the new interest rate, processing fees, and any other charges. Online calculators can help estimate these savings.
Application Process: If the savings are significant, initiate the loan transfer process. The new lender will pay off your existing loan, and you will continue with the new lender at the reduced rate.
2. Negotiating with Your Current Bank
Before deciding on a loan transfer, negotiate with your current bank. Here are steps to strengthen your negotiation:
Present Market Rates: Gather information on current market rates and offers from other banks. Present this data to your bank.
Highlight Your Profile: Emphasize your status as a gold customer, consistent repayment history, and any long-standing relationship with the bank.
Request Rate Reduction: Formally request a reduction in your interest rate. Banks may offer a reduced rate to retain valued customers.
3. Switching to a Different Loan Product
Some banks offer different loan products with varying interest rates and benefits. Explore if your bank has alternative loan schemes with better rates and terms. Switching to a more favorable product could reduce your financial burden.
Evaluating the Financial Impact
1. Cost-Benefit Analysis
Conduct a detailed cost-benefit analysis before making any changes. Consider the following:
Processing Fees: Check the processing fees for transferring the loan or switching products.
Prepayment Charges: Some loans have prepayment penalties. Ensure you are aware of these charges if applicable.
New EMI and Tenure: Calculate the new EMI and loan tenure. Ensure it fits your budget and long-term financial plans.
2. Impact on Monthly Budget
Assess the impact of the new EMI on your monthly budget. Ensure the revised EMI is affordable and does not strain your finances. Maintain a balance between meeting EMI obligations and saving for future goals.
Exploring Additional Strategies
1. Prepayment Options
If you have surplus funds, consider prepaying a part of your loan. Prepayment reduces the principal amount, thereby lowering the interest burden over the loan tenure. Most banks allow partial prepayments without any penalties.
2. Increasing EMI Payments
If feasible, increase your EMI payments. Higher EMIs reduce the loan tenure and overall interest outgo. Ensure the increased EMI is sustainable within your financial plan.
Consulting a Certified Financial Planner
A Certified Financial Planner can provide tailored advice on managing your housing loan. They can help you evaluate options, negotiate with banks, and make informed decisions. Their expertise ensures your financial strategy aligns with your long-term goals.
Conclusion
Your concern about the high-interest rate is valid. By exploring refinancing options, negotiating with your current bank, and evaluating different loan products, you can potentially reduce your interest burden. Additionally, prepayment and increasing EMI payments can further manage your loan effectively. Consulting a Certified Financial Planner for personalized advice is also recommended.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
