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Burdened with home loan? Here's help

July 18, 2008 10:46 IST

The Reserve Bank of India has once again hiked rates and as a result interest rates on loans are going through the roof.

What should the borrowers do now? As a home loan borrower how should you negotiate with your lending bank to reduce your home loan rates?

If home loan rates go up further, should you keep on hold your plans of buying your dream home or the car your neighbour owns?

Also, why are banks and loan providers quick to increase home loan rates when the rates are on an upswing but reduce the rates selectively when they move downwards?

In an hour-long chat on on Friday, personal finance expert Harsh Vardhan Roongta answered to many such readers' queries. Here is the transcript:

HARSH ROONGTA says, Hello and Welcome to this chat on home loans. Home loan has been in the news recently with the increases announced by most lenders. So lets talk about that and any other issues that you might raise. Let's get started then.

sujit asked, i took 14 lakhs loan and i am paying 17300 EMI. my EMI is constant despite the rate has increased? do i need to meet the bank for readjusting the EMI
HARSH ROONGTA answers,  at 2008-07-11 15:54:24Obviously your loan tenure has been changed rather than incraesing the EMI. If your monthly budget can sustain it you should meet the bank to get your EMIs increased. To check on how much the EMI will increase you can use this calculator by cutting and posting this link on your browser.
bms1 asked, whick bank offer low interst fro Laon tranfer from ICICI(blood sucker bank)
HARSH ROONGTA answers, You can compare rates offered by 26 leading lenders by using this link.
lakshmi asked, I have a floating loan from ICICI that I took when the interest rate was 7.25%. Now within a span of 3 years, the interest rate has gone up further. Would it be a good option to switch to other banks like LIC housing finance or does one have to live with the hike for the next 20 years ?
HARSH ROONGTA answers, it depends on what is the interest rates your current lender is charging you. The current rates in the amrket for a 20 year floating rate loan is around 11-11.25% . If you have had a perfect repayment track record on your existing loan you should not have any difficulty in getting this rate. To find out whether this makes sense or not for you to switch to another lender you can use this calcualtor which will take into account any prepayment charges that you might have to pay your existing lendr as well as any fee payable to the new lender.
rgk asked, sir this is rgk I have availed home loan in ICICI bank & emi is 5830 in2004.Top up loan also taken the emi is 1315.In 2006 i have taken 1 lakh & emi is 3616 at HDFC bank.Another 1 lakh taken 6 months back & emi is 3615 in deatch bank .Totally I'm paying Rs14376 As on last month.please suggest me how to reduce the EMI.I have plan to construct 1st floor next year.
HARSH ROONGTA answers, Assuming that you have a perfect track record of repayment on all your loans your best bet is to take a single loan (either from your existing home loan lender or if he is not willing to give it from any other lender who is likely to be more than willing to give enough loan to repay the home loan lender as well as the personal laon lender). This will ensure that you pay a single EMI for a longer tenure loan.
kkl asked, hi Harsha, My Home loan amount is Rs 19,000000 Interest rate : 10.50% EMI : Rs 19000 tenure : 20years Bank : Axis bank Year of taken : march 2007 Recently there is increase in my interest rate by 1%.what will be the effect of my home loan. If tenure increases how many months will it be increase? What is the best way to proceed furthur? Should i increase tenure or EMI? Shall i pay the premium amount? if i need to pay the premimum amount how much should i need to pay for that 1% increase in order to ovoid increase in tenure or EMI? Please clarify this. Thank you.
HARSH ROONGTA answers, Most of your questions will be answered by accessing this calculator.
rvveer asked, I am getting home loan at 1 % less interest from another bank. Should I shift the loan with 2% penalty and 1% processing charge of the new bank?
HARSH ROONGTA answers, Please use this calculator
vass asked, Hi I have 6 lackhs of savings and i have a housing loan amount of 5 lackhs principal left to be paid to ICICI and the repayment penalty is 2.5%. Is it good to repay the whole amount than investing it in other instruments ? thanks ain advance :)
HARSH ROONGTA answers, Generally speaking before you consider prepayment you should take into account funds required for an emergency as well as the tax implications. This calculator will help you in deciding whetehr it makes sense for you to prepay the loan.
Siraj asked, Hi Can Back has right to even change the Fixed Loan intrest Rates ?I took a loan from icici 3 years back at 7.25 % Fixed. Now i am worried that if this may change anytime ?
HARSH ROONGTA answers, Check your loan agreement. (If you do not ahve a copy of the loan agreement please request for one by filing an application on the bank's website reserved for grievances and giving your details of the loan account numkber). The bank can change the fixed rate only if there is what is called a "money market clause" in the agreement that allows the bank to incrase the interest rates. However to the best of our knowledge no bank has yet used the money market clause to incraese the "fixed rate" of interest.
Prashant Doshi asked, Good Afternoon Mr. Harsh,I have already booked a flat for 65 lacs. 25 lacs paid up front. Balance is 40 lacs. I am planning for a home loan up to Rs.30 lacs. Please suggest me (1)shall I go for fixed or floating (2) Tenure should be 15 or 20 years ??
HARSH ROONGTA answers, It is difficult to answer such questions without further details. but let me make an attempt. 1) On fixed or floating - please remember this is nota one time desicion and needs to be reviewed at least every 6 months. Given the fact that genuine fixed rate loans are at least 2.50% more expensive than a floating arte loan at Apnaloan we still advise our consumers to opt for floating rate loan. See a detailed response in this link.
sachin1 asked, Hi is it possible to take a construction linked load and pay Full EMI as if we have taken down payment loan because as per my calulation the down payment discount by builder is 4,00,000 and if I take a 30,00,000 Loan for 10 years(EMI~41000) then the interst I am paying on outstanding loan is much higer then the interst I have to pay for three years construction linked and if from day1 i keep me EMI as ~41000 then the principle left is less in case of construction linked the downpayment.
HARSH ROONGTA answers, This kind of loan is called advance disbursement facility (ADF)
where the full disbursement is made to the builder at one shot even though the property is still under construction. Obviously the builder will pass ona discount in price to get the full payment. In princple Apnaloan advises it clients not to go in for such facilty as the complete risk of delay oin construction is transferred to them. If there is a delay in handing over the possession then the so called benefit just evaporates. Also clients are led to beleive that they can enjoy tax beenfits on the loan repayments if they start paying the EMIs. This is misinformation. TAX BENEFITS ARE NOT AVAILABLE IN RESPECT OF ANY LOAN REPAYMENT IN A PARTICULAR YEAR IF THE PROPERTY IS STILL UNDER CONSTRUCTION ON MARCH 31 OF THAT YEAR. So our advise is - do the normal booking and pay installments as and when they fall due on construction linked basis rather than take the entire risk on your head.
vlmocherla asked, I took a Home Loan from IDBI 3 years back @ 7.5% Now the rate is 10.5 and this rate is is going to increase in a moth or two. My Total Loan Amount is 12 Lakhs out of which Rs.30000 is cleared by paying for 3 years. Now my question is if I can pool up the Money do you think it is a better idea to get rid of the loan?
HARSH ROONGTA answers, The rate being charged to you is reasonable given the market situation. However if you have surplus youn should consider prepayment. You can also use this calculator to finds out the benefit of prepayment.
Jitesh asked, Hello, I have taken home loan from ICICI bank. My current rate of interest floating is 12.75 % , which is highest I have know as compared to others. Some other who have taken loan from ICICI itself are paying @ 10.75%, then why ICICI is charging 12.75% to me? Is there any way I can change my banker?
HARSH ROONGTA answers, Off course you can and you should. The current market rates are around 11 to 11.50%. See the lending rates of about 26 lenders on this link. For getting offers from other banks you can use market places such as which make the banks compete for your loan.
Temp1234 asked, In genral banks charge for prepayment. Do bank also charge for changing tenure. For e.g. If I want to change tenure from 20 yrs to 5 or 10 yrs. then will bank charge me for that as well? I have taken home loan from sbi.
HARSH ROONGTA answers, Very intresting question. This is almost akin to pre-payment and the bank will be within its right to charge a pre-payment fee if the loan agreement signed by you provides for it. However given the current market situation the bank may perhaps be persuaded to waive the pre-payment charge as well. Please try.
vlmocherla asked, I took a Home Loan from IDBI 3 years back @ 7.5% Now the rate is 10.5 and this rate is is going to increase in a moth or two. My Total Loan Amount is 12 Lakhs out of which Rs.30000 is cleared by paying for 3 years. Now my question is if I can pool up the Money do you think it is a better idea to get rid of the loan?
HARSH ROONGTA answers, This will depend on your salary and existing loan amount details. However if you are in a position to come up with about 40% of the car's cost from your own sources you should be able to get a loan on what is termed as a "No income proof" car loan scheme.
Baburao asked, My loan is insured with SBI. If I go for loan transferred to other Bank, does this insurance cover still remain?
HARSH ROONGTA answers, That will depend on whether it is an individual cover or a group cover. please read the cover document. Our sister company will also be happy to send your query to experts if you send them the details by using this link.
samuel asked, Hi .. I had taken loan of 25 L in Nov'2005 at 7.5 from ICICI, but recently this month they have raised the rate to 12% form earlier 11.25% ..I believe the same should hold true for all the persons who took loan with me in the same period, but I see a diffrence there.. Please advice, if something can be done .
HARSH ROONGTA answers, if your repayment track record is good you should not be paying more than 11-11.25%. You should consider switching your lender. Check out various offeres available in the market. You could also use the services of market places like
22am asked, My builder paid me (and also deducted tax) under Section 194-A -- Interest other than interest on securities. Which ITR form shall i use to file the return?
HARSH ROONGTA answers, That will depend on your other sources of icnome as well. If there are no other sources of income you can file Form ITR - 2.
tushar asked, How is capital gain adjusted into Loan pre payment. Is there any benifit out of it
HARSH ROONGTA answers, No. There is no benefit.
samuel asked, Thnaks Mr Harsh for the answer. Just one more question,will the difference in 1% (between current loan vendor & new loan vendor) be sufficient to switch the vendor given that I would need to pay the prrepayment charges ?
HARSH ROONGTA answers, Please check the calculator.
samuel asked, Mr Harsh Please answer this quest: on "mahesh786 says, When one opts for floating rate, EMI goes up when interest goes up however it never comes down when interest goes down. Why do bank follow unfair trade practise and what can be done about it? Thank you. "
HARSH ROONGTA answers, This can be checked by alert consumers such as yourselves. Vote with your feet. If the banks do not pass on the benefit of lower interest rates to you should shift your loan to a new lender. also please file compalints with RBI and the banking ombudsman.
as asked, what is advisable- I hv 7 lacs in hand and purchased a house worth Rs. 20 lacs. Shd i take home loan of 13 lacs or take 15 lacs and invest remaining 2 lacs in hand in mutual funds/shares?
HARSH ROONGTA answers, It is never a good idea to borrow to invest in shares and equity oriented mutual funds.
jprilp asked, Hello Sir!.. Do you think is it a right time to go for home because of property price is decreasing?.
HARSH ROONGTA answers, This answer should be for all who have asked similiar questions. As a general thumb rule the right time to buy a residential house that you intend to use for self stay is when you are reasonably certain of your income prospects as well as ready to make a committment to stay in a particular city and a particular locality. If that is done than we beleive that trying to time the property market does not make any sense and you should purcahse the property. However given extraodridnary market situation it may not be ahrmful to wait for a few months to see how the prices pan out in the busy festival season. But be prepared to take a quick desicion and act quickly once you are ready to buy.
HARSH ROONGTA says, Ok folks. This was quite good. If you still have some queries you can login to See you at the next chat. Bye.