Is it a good idea to buy a house this holiday season?
The COVID-19 pandemic has completely changed our traditional way of thinking. It made us all realize the importance of having our own home, especially when considering working from home as the new normal in all industries. The pandemic has had a ripple effect on easing interest rates and increasing liquidity in the banking system. Kotak Mahindra Bank recently cut its mortgage interest rates from 6.65% to 6.5% as a holiday offer. The reduced interest rates will be valid until November 8, 2021.
Other banks are also expected to follow in Kotak Mahindra Bank’s footsteps. The lower interest rate plan is here for now and it brings a lot of relief to existing home loan customers.
In fact, banks across the country have steadily reduced mortgage interest rates since the last quarter of 2020, passing the rate benefits on to customers, which has reignited declining demand for home loans. While real estate developers have seen an increase in home sales due to lower interest rates after the foreclosure eased last year, people are also looking for larger homes as the home is become the center of our lives.
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Several other leading domestic commercial banks such as State Bank of India, HDFC, ICICI Bank, Axis Bank, LIC Housing Finance, etc. rates now ranging from 6.65 percent to 6.95 percent.
Considering the current economic conditions, it is better to opt for variable rates because one can take advantage of the low interest rate regime. Given the liquidity of the system, mortgage rates are unlikely to rise sharply in the near future. Of course, the same cannot be ruled out later if interest rates start to rise. Thus, existing mortgage loan customers can take advantage of this opportunity to transfer their balance loans.
A low interest rate on credit is an opportunity for some of the existing people to switch off their mortgage loans at lower rates. Lower interest rates would help existing customers reduce their EMI expenses.
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What Should Existing Home Loan Borrowers Do?
You must first contact your existing lender and apply for a rate concession based on your existing relationship and repayment history. In addition, individuals do not need any documents to initiate requests with the current lender. You can contact your bank online and share your request, somewhat forcefully, i.e. sharing competitive market information. Additionally, if you are managing a fixed rate variant or an old MCLR linked loan, switching to an external benchmark such as the repo rate will reduce the interest rate. The lender will charge a nominal fee for the conversion and the new rates will be allocated in accordance with the current pension rate. Renegotiating with an existing lender is always the priority option.
However, if the rate reduction request was not accepted by your existing bank, find another suitable lender. Look for post-disbursement services and responsive digital customer service in addition to the lower interest rate. Clearly communicate the terms and requirements of your loan with your new lender. A new loan agreement will be provided and a processing fee and administration fee will apply. So do the math first, then let the lender know your intention i.e. whether you are looking for an EMI reduction and term extension, or a debt consolidation supplement or principal reduction. .
Also read: Kotak Bank cuts mortgage interest rates to 6.5% ahead of holiday season