If your HFC is not offering you any better option, you can always look at various other home loan schemes. With rising competition among the HFCs, you can use your good payment record to your advantage and do a balance transfer (BT), wherein the unpaid portion of your home loan is transferred to a new HFC at a lesser interest rate. This, however, depends on your personal liquidity position and other mid-term and long term requirements. "You should find whether the discounted cash flow is higher than the interest rates. Also, watch out if the new HFC includes your pre-payment amount and processing fee to your overall loan amount," says Amitabh Singh, partner, Ernst and Young. Analyst advise that you should find out what is the paperwork required, if you can use the original EMI cheques or have to issue fresh ones for making payments towards your loan. Also, remember BT is not an advisable option at the end of your loan-term, and you may check with your current HFC if it can offer you any better deal. Increase the tenure If the present inflationary trend, now compounded with an increase in interest rate, has put you in a cash-flow crunch, you can increase the tenure of your home loan. Take the case of Sahay, who was paying Rs 33,000 EMI on a tenure of 20 years. Now, with the increase in rates, he’ll have to pay 38,000 for the same period. But if Sahay extends his loan period by five years, his EMI at the new interest rate will be Rs 36,000. "If you’re at the early or mid-stage of your home loan tenure, you can exercise this option. This is advantageous for those who’re on a floating rate because as and when there is a decrease in interest rates, you can re-set your options and for the time being ease out of this pressure," says Singh. You should, however, realise that with the increase in the tenure, the total interest that you’ll pay over the life of the loan term also increases. For example, in the case of Sahay, at current interest rates, he is paying Rs 74 lakh in interest for a tenure of 25 years. But if he was on a 20-year loan term, the total interest that he’ll pay will be Rs 56 lakh.
Communicate and re-negotiate
If you’ve been a good customer, then there is always a possibility that you can negotiate with your bank on your home loan term period and the interest rate. Explains Amit Suri, CEO, AUM Financial Planners: "The interest rate that any housing finance company (HFC) charges to you is around 2-3% less than the PLR. In India, this benchmark for every bank is different. It doesn’t necessarily mean that every time there’s a hike in PLR, your interest rate will go up. If you’ve been regular with your payments, you can explore this with your bank." Analyst say that you should keep a watch on the interest rate your HFC is offering to new customers. Generally banks offer different schemes to new customers with various discounts. "If your existing lender is doing so, it clearly indicates that there is a cushion. And you should also benefit from it," says Harsh Roongta, CEO, Apnaloan. Besides, an HFC can only reset the floating rates once in every quarter. And if recently there has been a raise, make sure that you should be impacted only when the bank reviews it in the next quarter.
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