Home Loans

Buying a home is inevitable for many people. It’s a natural procession in life but there are certain issues to home loans. Find them out now.

Over the course of a single year banks were raising home loan rates for new customers but failed to do so for existing customers for fear of them defaulting on their home loans. With over a quarter percent raise in the cost of funding banks will yield a .05% interest rate hike. The rates for home loans could be lowered now but banks are skittish and are watching the market closely. Typically during hurricane season the rates go up, but during Christmas time the rates go down.

There are ways that you, as a consumer, can force home loan rates to lower:

Negotiate, Negotiate, Negotiate

Like most people you probably assume that home loan rates are what they are and you just have to deal with it. This is not the case. There is always a range that banks can negotiate in. If you try to pull this tactic just prior to signing you can see yourself garnering a .25% discount.

Let Banks Fight

Low rates for home loans are a thing that banks will war against. Find several banks and get quotes from each. They won’t hand you a home loan document listing everything but they will give you a written sanction note with the pertinent information like amount, interest and other feed and charges. This letter will allow you to get better rates. The home loan market is competitive and these banks will try to outwit each other.

The Timing

After you have finalized the property you can get a better deal when you approach a lender. They have to make an immediate disbursement and if you give off the idea you may back out they will jump to make you a better deal.

Large Firms

The advertised rates that you see banks throwing about have no real bearing on a case by case basis. Home loans aren’t really fixed in place by those signs you see about town. You are given one home loan that is a “card rate” which is shown all over the place then there is there is the “negotiated rate” which is the home loan you’ll be after. These are the rates given to lenders to negotiate for your business. These rates are even higher if you’re dealing with a large company instead of a small town bank.

Customer: New or Old

Rate increases will affect everyone across the board regardless if you’re a new customer or not. Home loans fluctuate unevenly and you need to time the market just right in order to get the good home loan rates. Older customers, however, can sometimes get less hassle when looking to refinance home loans than new customers. It is for this reason that you should first shop for home loans at your current bank. They may be able to surprise you with some decent rates. If not there is always the Internet where you can shop around for home loan rates.

Working with a large firm?

Mostly, rates advertised by banks/HFCs have no significance on a case-to-case basis. Explains a senior banker, “More often rates charged by banks/HFCs are not very transparent. There is usually one card rate, which is published on a public domain. The other is a negotiated rate, which happens on a case-to-case basis.” Often, a borrower has the upper hand in negotiating the rate especially, if he is working for a large corporate. There are special rates for such corporates, which is often less than the rates offered to a common borrower. For example, a bank/HFC offers home loan rates at 12%, such ‘special borrowers’ may get a loan at 11.75%.

New customer or old?

Experts say that a rate hike affects both new and existing borrowers. It is linked to mortgage reference rate (MRR). Whenever MRR increases, home loan rate rises and vice versa. There is usually a gap of 200 basis points. But in the past one year, the gap has been vacillating, indicating that old and new customers are charged different rates.

Sujan Sinha, head-retail assets UTI Bank explains that at times, a bank hikes rates for new customers. The fact is that the rates are reset every calendar quarter beginning April, July and October. If a bank hikes rates in July, it will have an immediate effect on new borrowers. But existing clients will be impacted only in October. To that extent, the rate hikes affect existing borrowers with a lag.

Things are different in a falling rate scenario. Customers feel that a bank automatically passes on the rate hike to new customers. However, the old customers benefit from lower rates only with a lag.

Says an industry expert: “One of the main reasons why floating rates’ customers are unable to take advantage of falling rates is that banks link floating rates to internal benchmarks. A benchmark rate must ideally be an external, market-related rate. Banks should not have complete control over such rates. But in India, the benchmark is the prime lending rate (PLR), which is calculated by the bank itself. But the fact is that a bank does not lower the PLR unless the cost of funds falls considerably.”

So, when banks/HFCs lower rates, it benefits only new customers. The old customers are charged higher rates. Rather than leaving it to your karma, this time you could probably make a call to your home loan provider. Like Lalitaji, you may just get luckier.