Taking out a home loan is a long-term commitment, but that doesn’t mean you have to be locked into the same terms for decades. If you feel like your interest rate hasn’t dropped despite news of market cuts, or if you simply want to pay off your debt faster, it is time to take action.
Here is a guide on how to navigate the current lending landscape and reduce your financial burden.
- The Power of the “Balance Transfer”
If your current lender isn’t passing on the benefits of falling interest rates, you don’t have to stay loyal to them.
- Negotiate First: Start by asking your current lender for a rate reduction.
- Shop Around: Once you have a counter-offer, check with competing lenders to see if they can beat it.
- The 0.5% Rule: Financial experts suggest that if you find a rate difference of 0.5 percentage points or more, it is likely worth the effort to move your loan to a new lender.
- Understand Your Lending Framework
Why do some borrowers see immediate rate cuts while others don’t? It often comes down to who you borrowed from and when.
- Banks vs. NBFCs: Banks are mandated to follow an External Benchmarking Lending Rate (EBLR), often tied directly to the RBI’s repo rate. This ensures that when the repo rate drops, your interest rate should follow suit relatively quickly.
- The NBFC Hurdle: Non-Banking Finance Companies (NBFCs) do not have the same mandatory benchmarking. Their cost-of-funds structures are more complex, which can lead to “sub-optimal” or slow transmission of rate cuts to the customer.
- Legacy Benchmarks: If your loan was sanctioned before October 2019, you might still be on older regimes like MCLR or the Base Rate. These are less transparent than the current EBLR system.
Pro Tip: If you are on an old benchmark, consider paying a nominal fee to switch to your bank’s EBLR-linked loan for better transparency.
- Smart Prepayment Strategies
While lowering the interest rate is one way to save, changing your repayment behavior can be even more impactful.
- The “Lump-Sum” Advantage: Making regular, disciplined part-prepayments can shave years off your loan tenure and significantly slash your total interest outgo.
- Increase Your EMI: As your income grows, consider voluntarily increasing your monthly EMI.
- Keep EMIs Constant: When interest rates fall, your lender might offer to lower your monthly EMI. If you can afford it, refuse the reduction. By keeping your EMI constant while rates are low, you effectively pay more toward the principal, shortening the loan’s life.
| Action | Benefit |
|---|---|
| Check your benchmark | Ensure you are on the modern EBLR system. |
| Compare rates | Look for a 0.5% difference to justify a switch. |
| Request a "Conversion" | Ask your NBFC if they offer a facility to switch to lower current rates. |
| Prepay when possible | Use bonuses or surpluses to reduce the principal balance. |
Lowering your home loan EMI isn’t just about waiting for the central bank to act—it’s about being an active participant in your financial journey.