Harsh Roongta answers all your loan related questions
I am planning to take a home loan from a private bank. The loan amount is R10 lakh for a tenure of 10 years. Can I opt for a fixed rate of interest? I am planning to close the loan within five years.
Harsh Roongta: This is never a one-time decision. Any decision you take needs to be re-evaluated at least once every six months. A true ‘fixed’ interest rate is one which remains fixed during the entire tenure of the loan. Very few lenders actually offer true fixed interest rates. Some offer a fixed home loan interest rate with reset clause of two to 10 years. A fixed/dual rate of home loans is generally given at a rate higher than the prevailing floating rate loan. In today’s scenario (February 2013), it makes very little sense to go for fixed/dual rate schemes of any lender since interest rates are widely expected to fall in the coming months.
You can opt for a longer tenure, floating-rate loan. This way you retain the flexibility of low EMIs and at the same time, you can
pre-pay the loan without any penalty whenever you have surplus funds as prepayment penalty is waived off on all home loans given under a floating rate whether by a bank or a housing finance company.
I took a housing loan from a private bank. My current interest rate is 11.5% after recent changes. I came to know that the same bank itself is offering new housing loans at a lower rate than this. Also, there are other banks like State Bank of India that are offering new housing loans at rates lower than this. Is it possible for me to take a new home loan at a lower interest rate and prepay the old loan? If yes, what is the procedure? How much will it cost me in terms of processing, penalty etc?
Harsh Roongta: It is advisable to transfer your existing loan to any other bank in case they offer you a better deal in terms of interest rate. You will need to have a good track record of paying your EMIs so as to be able to get an offer from another bank to take over your existing loan. No prepayment charges are payable on transfer of a floating rate home loan. You will need to consider the processing fees, which you may have to pay to the new lender, which will be in the range of 0-0.50% of the loan amount. Currently SBI is offering a floating interest rate of 9.95% per annum for a loan amount below R30 lakh with a processing fee between R1000 and R3250 (excluding service tax) plus other charges like advocate’s fee for property search and the title investigation report, valuer’s fee for valuation report, stamp duty payable for loan agreement and mortgage, property insurance premium, etc. This also involves the modalities of handing over the property documents from your existing bank to the new lender.