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Is it worthwhile to change bank due to the reduction in housing loan interest rates?
Posted on: 17/Mar/2017 11:38:09 AM
Immediately after the demonetization, it was expected that the interest for various loans including house loans would come down.
As expected, the public sector banks, the private sector banks, and other Housing Loan agencies have reduced the interest rates for various loans including housing loan.
As each bank has announced its own revision of interest rates, the question may arise whether it is worthwhile to change the housing loan account from the existing bank to another where the reduction is more attractive.
Is it worthwhile to transfer like that?
Immediately after the demonetization, large sums of money were deposited in the banks which were flushing with extra funds. Because of this both the public sector and private sector banks competed with each other to reduce the interest ratio.
Some banks have reduced it by a higher margin. In many banks, the reduction of the interest was kept only marginal.
This reduction in interest ratio is observed as a benefit especially for those planning to buy a new house. They have the great opportunity to avail housing loans at reasonably low-interest rates.
Though this is equally applicable to the existing housing loan paying account holders, they have to carry out certain basic tasks to avail the maximum benefit,
In other words, you need to carry out the conversion. This procedure is available in every bank. To avail the recently reduced interest rates, one has to carry out the conversion. It will cost a bit. You have to inform the bank that you are interested in conversion, pay the requisite amount and then avail the benefits of the reduced interest rates.
Generally, when the housing loan interest rate reduces, the EMI will not come down. Only, the duration of paying the EMI will come down. Even if you carry out the conversion, only the duration of EMIs will come down. However, it is still beneficial.
Let us assume that an individual pays a monthly EMI of Rs. 15000 for the housing loan. If he gets the reduction in the number of EMIs, by 20 EMIs, he/she will save up to Rs. 3 lakhs. The facility of doing conversion will vary. It will be applicable to only those who availed loan on the basis of paying interest. As the same interest rate is being charged for a fixed period, the individuals who took loans at standard fixed interest rates cannot avail this benefit.
However, everyone looks forward to the reduction in interest ratio and the subsequent reduction in the installment. In these circumstances, is it worthwhile to take attention on the bank which has reduced interest rates to a lower level as compared to your current bank? It might be ok but one has to take a look at both the positive and negative points.
First, check the difference in interest rates offered by the 2 banks (your current bank and the 2nd bank which has reduced interest rate further). If this difference is around 1 percent, you may think about changing the bank. However, it the difference is only about 0.5 percent, it is better to continue with the existing bank.
Why is this aspect to be considered? It is because the new bank will have some processing fees for this change. In case you take an additional loan, you have to register the mortgage of the house in the Registration Office. This would also accrue some expense.
When we look at the above 2 additional expenses, we can appreciate that it is worthwhile to change the housing loan to a new bank only if the new bank offers an interest discount of more than 1 percent as compared to your current bank.
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