How to Get Lower Rates for Your Home Loan

The 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.

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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 scores and you need good 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.

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 meals. 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.

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.

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.

Play the “I will switch banks” card

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.

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.

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

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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