In the midst of rising interest rates and high inflation, two banks — Bank of Baroda and Bank of Maharashtra —have recently slashed their home loan interest rates. This would be only available to eligible customers and for a limited time. However, if you were planning to buy your dream home and were worried about the high-interest rates, this could be the best opportunity to get a lucrative deal from these banks.
If you are an existing customer and have a home loan with a higher interest rate, consider shifting your home loan to a bank offering a lower interest rate. By doing so, you can save money on interest payments and reduce the overall cost of your loan.
Before deciding, however, it’s important to carefully review the terms and conditions of your existing loan, as well as the terms and conditions of any potential new loan. Consider factors such as processing fees, prepayment charges, and the tenure of the loan. Here are some pros and cons of shifting your home loan to a bank that is offering a lower interest rate:
Lower interest rates: The biggest advantage of shifting your home loan to a bank that is offering a lower interest rate is that you can save money on interest payments. This can significantly reduce the overall cost of your loan.
EMI reduction: When you shift your home loan to a bank that is offering a lower interest rate, your EMI (equated monthly instalment) will also get reduced. This means that you’ll have more money available each month to meet other expenses.
Improved credit score: By shifting your home loan to a bank that is offering a lower interest rate, you can potentially improve your credit score. This is because a lower interest rate means lower EMIs, which means you are less likely to default on your loan payments.
Adhil Shetty, CEO, Bankbazaar.com, says, “The primary benefit of a home loan balance transfer is that you can avail of a lower interest rate on your loan. It can significantly reduce your interest payments and save you money in the long run. A lower interest rate can also result in reduced EMIs. This means that you’ll have more money available each month to meet other expenses. You must check all pros and cons and negotiate better loan terms, such as longer loan tenure, before the final call.”
Processing fees: When you shift your home loan to a new bank, you may have to pay processing fees. This can be a significant expense and may offset some of the savings you make by shifting your loan.
Prepayment charges: Some banks charge prepayment penalties if you prepay your loan before the end of the tenure. This means that if you want to shift your loan to a new bank, you may have to pay prepayment charges to your existing bank. However, it may vary from bank to bank. There are no prepayment charges for shifting your floating rate home loan.
Impact on credit score: Every time you apply for a loan, it gets recorded in your credit report, and multiple applications in a short span of time can negatively impact your credit score.
It’s important to carefully weigh all the pros and cons before deciding to shift your home loan. Consult a financial advisor or speak with the representatives of the concerned bank to make an informed decision.