Home loan tips. Review on Taking a Home Loan

-Here is how home loan rates are calculated.

RBI decides a Prime Lending Rate(PLR). Banks have their internal bench mark lending rates based on this PLR and some internal factors. On this bench mark rate, banks give you a discount. This discount remains constant for you through out the loan period.

interest rate= PLR - Discount.

for e.g: My rate 11.75%= 12.75%(PLR) - 1%(discount).

When RBI increases rates, The bank also hike its PLR(or whatever they call their bench mark) and your new rate is calculated.

When RBI cuts the rates, banks reduce their PLR. BUT some banks like ICICI, 'wait and watch', these banks then quietely give a higher discount to the new customers and keep stealing from old /existing customers.

-Avoid banks with varying rates

ICICI has a varying discount for all customers depending on how smart you are and where you work. So if you work for an Infosys you get bigger disounts but in case you work for XYZ software limited, you are screwed. You also pay for the discount offered to Infosysy guy also! Poor you!

Also, check how RBI changes have affected Bank's interest rates. For e.g. On 26th June, RBI hiked repo rates and CRR by 50 basis points each(50 basis points= .5%). Many banks reacted to this immediately.

SBI hiked rates by .5%

Axis hiked rates by 1%

HDFC by .5%

ICICI by .75%

Check this history and verify if the interest hike by bank was justified. All this is easily available on the internet. Put time to this. Amitabh rightly said in Sarkaar Raj, pass ke fayde se pehle dur ka nuksaan dekhna zaroori hai.

-Check banks policies

In my opinion, banks that treat old and new customers alike should be the first choice. One such bank is axis bank. They have a single rate of interest for all customers and they are also the first to lower rates in case of a RBI cut. So no matter, even if you are the nephew of Manmohan Singh or son of Mr. Sham Lal Mittal from Panipat, you get the same deal.

-Check if bank is only borrowing based

Go for banks who donot rely entirely on lending funds for your loans. Such banks should have a high cash reserve through FDs and saving accounts and other investments like mutual funds. This means any external factors like RBI rate hikes donot have an adverse effect on your interest rate.

-Some more tips:

Check all banks’ policies,

Check for such riders as,

-What are the plenties and charges in case you want to fore close the loan.

-Ask for a discount on the PLR. Remeber the PLR varies but discount remains constant.

-Bargain on the porcessing charges.

-Try to approach as a group. This way you can bargain and extract a better deal.

-Dont fall prey to marketting gimmicks that say today is the last day for so and so scheme and you can get a lower interest rate if you apply today. All these are just gimmicks. Rates are applicable as on the day the loan is approved.

• Use EMI calculators available on the interent(one on Money Control is really good https://moneycontrol.com/loans/houseloans/calcemi.php) and check how your Interest component and loan term varies with change in Interest or pre-payment.