Home Loan Switch - Q & A Forum

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Rb asked 9 years ago

Hi, Please help me in decision making whether I go for loan switch or, change to MCLR within same bank. Outstanding Home Loan Principal: 45,65,000 Interest Rate: 9.35% (Base Rate: 9.25% + 0.1% spread) EMI: 58,300 Term Left: 122 Months Existing Bank (ICICI) is asking for 0.25% + ST = ~ 13,700 Rs to switch to MCLR based rate i.e. 8.65% It will bring down EMI count to 115 from 122 with same EMI value Bank of Baroda is offering MCLR (with zero spread) based rate i.e. 8.35%. This has features of SBI Max Gain (Over Draft Facility) but the switch cost is roughly 30,000 and brings down EMI count to 112 with same EMI value. This will involve lot of paper work like stamp duty on loan, government notifications, securing papers from ICICI etc. I intend to close the loan in next 60 months.

Given the zero spread in B0B, I am skeptical on how their 1-yr MCLR will come up next year ? Will it be too high as compared to other banks like ICICI, SBI etc.
Shall I wait until April for new MCLR rates to switch and continue with base rate until then? Are they expected to go down further?
Need advise on what should be preferred option (ICICI/BoB) and why ?

6 Answers

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Sreekanth Staff answered 9 years ago

Hi, As you are planning to pre-pay your homeloan over the next 5 years or so, option - 2 looks to be a decent choice. RBI in its Feb monetary policy review, has stated that rate cuts may not happen in near future. So, the lending rate cuts may not happen in near future, even if they happen there will not be deeper cuts I believe. You may consider switching to MCLR with the same bank. Over the next few years (before you close your home loan), the rate increase may not happen in a significant way (rate reversal) or may not happen at all, considering the micro or macro economic factors.

Rb replied 9 years ago

Thanks Sree,

I am inclined to ICICI too given no hassles in conversion to MCLR but BoB with overdraft facility also looks quite tempting not to forget lowest interest rate of 8.35%. I can park my additional funds in saving account to realize ~ 8% return (through lesser interest on principal) rather than 4%.

My concern is with zero spread wont MCLR shoot up for banks like BoB, Central Bank of India. How are they going to survive when likes of SBI, ICICI applied a spread over MCLR. What is the business logic and how sustainable is this approach ?

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Sreekanth Staff answered 9 years ago

Kindly read : MCLR - details & review.

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Sreekanth Staff answered 9 years ago

Hi, I always believe that nothing can be free in this world..there is no Free Lunch :) Instead of predicting their business strategy, may be its better to stick to your current lender where you are clear how things are going to be in next 5 years (to certain extent).

Rb replied 9 years ago

Thanks. Is it possible to negotiate the spread ICICI has been asking over MCLR (0.45%) ? Will a strong CIBIL score be of any help here ?

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Sreekanth Staff answered 9 years ago

Yes, if your credit history has been good and have a high Credit Score, it is worth negotiating with your banker on % of Spread/margin. You may also let them know indirectly about other banks' offers that are available to you. Suggested article: How to get Free Credit Report from CIBIL online?

Rb replied 9 years ago

Thanks. I read this article yesterday (very useful) and realized my CIBIL to be 840. Was just wondering whether bank will pay any attention to a single customer in terms of negotiating spread ? Will attempt to negotiate with banker.

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Sreekanth Staff answered 9 years ago

Sure. Kindly share your experience here, after discussing with your banker. Can be useful for other readers. Thank you!

Rb replied 9 years ago

Thanks Sree. I will certainly share my experience. Below article is also worth reading:
http://www.nitinbhatia.in/personal-finance/lowest-interest-rate/

Rb replied 9 years ago

Hi Sree, continued with same bank. Was able to negotiate both the interest rate and conversion fees. Advice is to interact with home loan dept directly rather than branch office. Got an exceptional deal.

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Sreekanth Staff answered 9 years ago

Wow.. nice to know about this :) Cheers. (If possible, you can share your experience as a write-up, we can publish it as an article on ReLakhs. Can be useful to other home loan buyers as well).