Photographs: Rediff Archives Harsh Roongta, CEO, Apnapaisa
Interest rates on home loans for new consumers have come down by around four per cent since September 2008 but consumers who had the misfortune to take their loan before that have only seen their rates drop by around 1.50 per cent to 2.25 per cent.
We are inundated with anguished queries from existing customers where they raise concern about this partial treatment like: I have taken a floating home loan from XXX bank in 2005. At present the interest rate I am paying is 12.5 per cent whereas for new customers it is around 9.25 per cent. Why this discrepancy? Isn't there any rule that forces the banks to pass on benefits to existing consumers as well? Can I take legal recourse?
Surely this vital area of fixation of floating interest rate in a transparent manner is crying out for regulation. Apart from setting up committees and paying lip service to the idea of fixation of this rate transparently we have not seen any significant action from the regulator.
But that does not mean that you as a consumer have no option to benefit from the drop in rates? Certainly not!
Follow these steps and your EMI could come down
You too can take advantage of the drop in interest rates if you have maintained a good track record of payment with your existing lender.
As a first step, you will have to devote a bit more time on this major financial obligation than you probably have done so far.
Secondly find out what interest rates the lenders (including your existing lenders) are offering in market for new consumers. This can easily be done from the comfort of your home or office by referring to price and feature comparison sites such as www.apnapaisa.com.
Thirdly if your existing lender is more or less in line with the market, your best bet is to make that valuable call to your existing lender to say that you want to pre-pay the loan and want a statement of overall dues so that you can make the pre-payment.
Almost every single bank will offer you an option to shift to the rates that they offer to new consumers (or very close to that) on payment of a fee. If you are the lazy type and cannot be bothered to do much more, you can accept this offer and still save significant monies over what you are currently paying. But ideally if you are of the type that wants to get the best possible deal and are willing to work for it then read on.
How to impress your new lender
Before you decide to switch lenders, shop for a better deal. It is necessary to get a fair idea of the offers available from other potential lenders.
Remember for these other lenders you are a new customer and they will offer their best rates to you. Approach various lenders with the intent of transferring the loan.
With new lender, the process largely resembles that of taking a new home loan.
You will have to fill in an application form with the requisite details annexed with photocopies of all the property documents that you had submitted to your existing lender.
The new lender will do the legal and technical vetting of the property as well as valuation and then you will get a sanction letter from them outlining the terms and conditions of their loan to you.
- Maintain good track record of payment
- Shop for the better deal
- Compare various deals offered by banks/ lenders
- Approach lenders with the intent of transferring the loan
- Be prepared to undergo some operational grind before the loan is taken over
Now comes the tough operational part before you can actually start enjoying the lower interest rates from the new lender.
Finally, enjoy the fruits of your labour
You will need the following letters from your existing lender:
Letter giving the details of the amount to be paid to completely settle the entire loan. This letter will have to mention the details like total loan amount taken, the loan amount outstanding as well as the prepayment charges, if any. The amount mentioned will be calculated as on a future date, to enable time for the buyer to arrange the payment. This letter is pretty standard and should not be too tough to get from the existing lender.
Letter listing all the documents held by them as security for the home loan. In most cases if you have an official receipt for the documents submitted to them at the time of disbursement then this letter may not be needed.
Letter from your existing lender addressed to your new lender agreeing to release the documents of title directly to them (the new lender) within a fixed number of days after receiving the full payment from them. It's this letter that causes the issue particularly if your existing lender does not want to cooperate (after all he is losing a good customer). There is no compulsion on your existing lender to give any such letter to a third party (your new lender) with which it has no contract. This is the letter for which you have to do a couple of rounds to your existing lenders office to get them to issue it.
Once you get this letter from the existing lender, the new lender will make payment in favour of the existing lender to close the account and also collect the documents from the old lender.
You can then go ahead, enjoy the fruits of your labour.