Home-loan-interest-2The market is fluctuating, interest rates are coming down, but the EMIs you have been paying for the home loan you took out five years ago is still the same?

Do you feel the pinch when you see your hard-earned money going down the drain? Is it time to think about refinancing your home loan at a lower rate? I say it is!

So how do you go about getting your bank to agree to lower your interest rates? Take a look.

1.Do not default on your monthly EMIs on your existing loan(s)

Now this may seem like a reiteration of the same advice given by hundreds of other banking and mortgage sites, but that does not take away from this basic truth.

The crux of the matter is that banks do not like defaulters. Even one defaulting of your monthly payment will bring down your CIBIL scores. And you need good CIBIL scores before you go knocking at your bank’s door for a refinancing of your existing loan.

Rule of thumb – Make sure that not just your home loan repayment history, but your credit history is impeccable too. Do not go overboard with a shopping spree and then forget to repay your credit loans on time.

2.Approach the bank when the market rates are lower than your EMIs

Suppose you are paying a fixed interest rate of 9.5% for your home loan for the next 3 years and the market rates have gone up to 10.2%. Then it is not the right time to approach your bank. You should be approaching your bank at a time when the interest rates are actually lower than what you are currently paying. In fact, the best time to approach your bank would be during property expos or loan melas. Interest rates and terms tend to be flexible around that time.

If you are paying a floating rate then the EMIs you pay will more or less be the same as the current market rates.

A word to the wise – Wait for the market rates to have gone down and stayed low for a couple of months before you approach your bank executive. You do not want to go running to the bank every week the market fluctuates.

3.Have your financials ready and up-to-date

What do I mean by this? Your paper work for applying for a refinance should be up-to-date. Your will need to have your account details including those with other banks and details of other loans with you. Your tax receipts should also be ready and paid on time. Refinancing a loan requires almost the same kind of paper work like the first-time round you took out the home loan.

Experts come handy: Get a financial adviser to go through your paper work, if you can afford it. They can give you a heads up on whether your bank will agree to refinance your home loan or not.

4.Ask, ask and ask, and you shall receive

Sometimes your bank will turn you down when you ask for a lower interest loan. In that case do not be disheartened, but keep pestering the bank executive every quarter.

Modern banking practices are a lot more flexible than they were a few years ago. Bargaining is an art not confined to the shopping districts anymore, but works in the corridor of banking finances too. And your bank executive is not always going to call you and let you know when there is a change in the bank’s policies regarding loan rates. It is up to you to be proactive and save yourself some money by being up-to-date.

Do not spam your bank emails – It might be a good idea to read the e-mails, promotion mails and flyers that your bank sends you instead of diverting them to the spam filter. Banks do let their customers know about their change of policies through these promotional mails.

5.Play the “I will switch banks” card

Sneaky? Yes, it is! But hey, it is your hard-earned money. You do not have to give away money for free to your bank when there are better options out there. Most banks do not like to lose customers. So they will be ready to make the switch. There might be a small fee involved in switching over from a higher to a lower rate.

There is usually a processing fee and other miscellaneous expenses that will accrue when you switch loans. In most cases this will be added to the existing loan amount. So wait for the next property expo that hits the city. During property expos, especially those organised by banks, the vendors tend to give concessions in the processing fee and/or rate of interest.

Hone your people skill – If you are really charming and verbose, then you may even get away with not paying the processing fee. So hone up on your people skills.

A little reverse psychology never hurt anyone – after all, it is not just bank executives who can turn on the charm when they need you to start a new account. Remember that when you switch loans within the same bank the paper work is less of a hassle than if you switch between two banks.

6.Approach private bank(s) at first

Another devious, or smart plan, is to approach a reputable private bank for your home loan. Their initial disbursement is faster than your average public sector bank, but their rates might be high. However, you do not have to run from pillar to post to get the loan sanctioned, because private banks are usually competitive and efficient about sending their personnel to you and getting the paperwork done at your place.Stay with the private bank for 6-12 months, and then switch to a public sector bank that offers a lower interest rate.

Additionally, try approaching the new players in the field like YES bank, PNBHFL, L & T Finance, Deutsche Bank, etc. which have entered the Indian market fairly recently. The new players in the field will have better offers than the older banks and financial institutions. Do your homework and take out a home loan from one with a good track record, both in terms of disbursement of loan and in terms of ease of repayment.

Be smart; think long term – While private banks may not be as insistent about having all the paper work in place at the initial stages, if you do plan to switch banks make sure to invest in a property and deal that is above board and legal. Public sector banks are very stringent about rules like building approval plan, encumbrance certificate, etc. So, if the home loan you take out from the private bank is under the scanner for whatever reason, the public sector bank will balk at taking over the loan.

So, gear up your loin clothes (metaphorically) and get ready to speak to your bank executive if you feel it is time to refinance your existing home loan to a lower interest rate one. May be that extra money you save could go into your long term savings and towards buying a vacation home?

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