Isn’t it true that most people treat the task of comparing interest rates as their first and most crucial step when thinking about getting a new housing loan or switching lenders? After all, the main anchor for the total cost of your home loan is the interest rate. But the problem is right there.
Even though interest rates are indeed an important factor to check when comparing different home loan lenders and even when transferring via a home loan balance transfer, there are other factors you should take into account. Do you know which ones? For a new housing loan or a balance transfer, let us explain some lesser well-known factors you should consider.
Loan reset frequency
Since it was implemented a few years ago, the repo rate or another external benchmark regime has included information from the RBI about how frequently loan interest rates change. It must be reset by banks at least every three months. Because it is unlikely that the interest rate on your home loan will change immediately after any such announcement, at least not until the next reset date comes around, the pre-set loan reset dates for the previous ICICI Bank MCLR
Rate regime also ensure that your EMIs are not immediately impacted. This aids in lowering interest costs or, at the very least, prevents interest costs from rising abruptly when interest rates are rising.
Simply put, you will have more time to make a decision before the loan’s next reset date if the reset period is longer. Even though it is against RBI guidelines, banks are allowed to issue loans with reset dates that are either linked to the date of the loan’s initial disbursement or to the date of the Kotak MCLR Rate review. The loan reset date, which is more significant, must be disclosed to the borrower and must be stated in the loan agreement.
Interest rate setting mechanism
The RBI, the country’s central bank, provides loans to Indian commercial banks that are having trouble securing short-term funding at the repo rate. Hence we as borrowers should first understand how lenders determine their loan rates. This will assist you in avoiding solely relying on rumours or prejudicial opinions, enabling you to make the best decisions possible.
Keep in mind that the ICICI Bank MCLR rate is influenced by a variety of other factors in addition to the repo rate. Bank’s cost of capital, operating expenses, and tenor premium are three elements have an impact on the interest rate for mortgage loans in addition to the repo rate.
The MCLR serves as a benchmark interest rate, below which a bank is not permitted to make internal loans. Changes in the RBI’s policy rates benefit borrowers more under the Kotak MCLR Rate-based system than under the base rate system.
Remember that all banks must review and disclose their ICICI Bank MCLR on a monthly basis for all MCLR tenures, such as 3 months, 1 year, etc., in accordance with the regulations set forth by the RBI. Depending on the size of the loan and the customer’s credit profile, including credit score and repayment capacity, the markup (spread) that banks may impose over their MCLR may change.
As a result, to determine the effective rate of interest, or the rate the borrower would actually be required to pay for the loan, the Kotak MCLR Rate and any applicable markup would be taken into consideration. Existing homeowners should be aware that their EMIs won’t change immediately when interest rates rise; rather, they won’t be affected until the loan’s reset date.
Choosing when and how to perform balance transfers
Home loans work best in an environment with low interest rates, like the one we currently experience. Who wouldn’t want to take advantage of low interest rates and finally own a home, after all? When deciding when to act, it is crucial to take into account the economy’s past, present, and future conditions as well as interest rate forecasts.
You shouldn’t just choose to transfer your balance if the RBI modifies the repo rate and there’s a chance that the lender’s rates might change as well. Keep in mind that the bank’s MCLR rate is influenced by factors other than the repo rate. A rise in the repo rate does not always cause the lender’s MCLR to increase.
You should consider the “total savings in interest cost” before accepting the lender’s offer of a lower rate, even though the ICICI Bank MCLR for home loans has increased and the interest rate on your current home loan is expected to increase as the loan reset date draws near.
Bear these things in mind before transferring your housing loan balance
Borrowers must evaluate the rates offered by various institutions and determine any potential interest savings before choosing a lender. They shouldn’t just focus on the lender’s low interest rate—which is low compared to a mortgage—when making a decision.
Consider any applicable fees and charges before submitting an application for a balance transfer. Because they will typically treat your request for a balance transfer as an entirely new mortgage application, the new lender has the right to impose fees and charges like loan processing fees, administrative fees, etc.
Consider these advantages of transferring your balance in addition to the overall interest savings:
etter loan features are available from a new lender: Why not utilise this benefit given that your request for a balance transfer may lead to better loan features in addition to a lower home loan rate? That’s not all, either.
You can ask the new bank or HFC to lengthen the loan payback term if you want to lower your EMI payment.
Changing from the base rate regime to the ICICI Bank MCLR rate regime: If you are currently servicing home loans under the base rate regime—which is extremely unlikely but could happen—you should take immediate action and choose a balance transfer to switch to the bank MCLR Rate or an externally benchmarked rate, like a home loan based on the repo rate. Repo rate regimes outperform base rate regimes due to more open transmission and rate setting, whereas Kotak MCLR Rate linked regimes only slightly outperform base rate regimes.