Get a cheaper rate from the same bank

By switching, you could save yourself a bundle. But get the timing right

Are you one of those who had settled on a home loan at a higher rate? Now's the time to shift to a lower rate. Interest rates are trending down. Monthly repayment instalments on a home loan take up a large chunk of a budget; hence, shifting to a "cheaper" home loan could result in substantial savings.

For earlier borrowers, though, shifting between banks means applying for a fresh loan and wading through the hassles of paperwork all over again. However, banks and housing finance companies are now offering a switching facility from a higher to a lower rate by the same financier for a small fee. Banks usually charge a switching fee of about 50 basis points (half a per cent). Good borrowers, though, can negotiate better terms. Says Harsh Roongta, chief executive officer (CEO), apnapaisa.com, "Good borrowers can negotiate a lower switching fee, and in some cases the bank may even waive it off."

Interest rate on current home loans are hovering around 10.5 per cent. But this could slide in the coming months as interest rates are set to fall. If your rate is around 13.5 per cent and you are able to get it reduced to around 10.5 per cent, you could cut your monthly installments by 17 per cent over a 20-year loan. Or save Rs 10 lakh in interest costs on a Rs 20-lakh home loan.

The longer the outstanding tenure or the amount of your loan, the larger will be your savings in absolute terms. Says Adhil Shetty, CEO, BankBazaar.com: "Those buyers in the old prime lending rate regime should definitely consider switching to a newer rate. The paperwork becomes less of a hassle if you shift within the same bank.So, don't miss the opportunity to lock yourself into a cheaper loan now."

On the other hand, you could opt to reduce the tenure of your loan instead of the amount of the monthly installments. In that case, you could close out your home loan in far less time. For those of you who can negotiate and reduce 300 basis points on a 20-year home loan to around 10.5 per cent, you can get your tenure reduced to around 12 years and four months for a Rs 20-lakh loan.

If you cannot negotiate regarding a lower home loan rate from your present lender, you could consider shifting your loan to a new bank or housing finance company. When you apply to a new bank to switch your home loan, be ready to provide additional documents, such as your current income tax certificates, salary slips and bank account statements. To get the lowest rate, your credit history will come into play. Some borrowers can get a low home loan rate depending on a clean payment track record without any defaults. Says Roongta: "Banks are willing to give better rates to good borrowers. With a good payment track record you can negotiate a lower rate for yourself."