Avoid paying more interest on your home loan

he news is all over the place. Home loans will become more expensive after Diwali!

While some players like HSBC are not committing as to whether they plan to increase their interest rates, others like HDFC have said they will increase the interest rate on home loans by 0.5 percent soon after Diwali.

HDFC's fixed rate loan schemes are currently charging somewhere between 8.25 to 8.75 percent per annum.

ICICI Bank said on November 5 that it too would hike its housing loan rates after the festive season.

What does this mean for you as a borrower?

Well, for starters, it means 'Bye bye' to cheap finance.

It also means the higher the interest rate, the more you end up paying. As a result, the number of years you take to repay your loan will also increase. If you don't want to see any increase in the number of years in which you will repay your loan, you will have to opt for higher monthly payments (EMIs).

What should you do?

Act fast.

But only if you have streamlined your paperwork and got a sanction in place. This means the loan company must have already approved a specific loan amount for you. All that remains is for you to sign the contract and take the cheque (also called 'disbursement' in banking parlance).

So sew up your finances right away and get that disbursement. This will ensure you get your loan at the lesser rate of interest.

Do remember that when the company disburses the loan (gives you the cheque in hand), the rate of interest will be the rate that exists on that day and not the one offered when the loan is sanctioned. So, even if you have the sanction, the key is to get the disbursement.

This means if your sanction is dated November 1 but you take the cheque only after Diwali, you get the postDiwali rate, which, as current newspaper headlines are screaming, are going only one way -- up! You will not get the lesser rates which were prevailing earlier or are prevailing right now.

If you are opting for an adjustable rate loan, you need not be in such a tearing hurry. Due to the inherent flexible feature of such a loan, the rates will rise as the market rates rise. Of course, if you do manage to close the deal, you will start off on a lower rate.

Currently, ICICI Bank has a scheme -- on till November 14 -- that offers home loans at just 7 percent per annum. This, however, is applicable only to their floating rate loans.

If it had been offered on a fixed loan, you would have been able to lock your loan at that interest rate.

As the age old adage goes: What goes up must come down. Let's customise it to today's financial environment: What comes down must go up!

In today's scenario, floating rate loans are cheaper than the fixed rate loans. Here's why:

~ICICI Bank's fixed rate loans are going for 7.75 percent per annum as against their floating rate home loans at 7 percent.

Some banks have a slab rate which increases as the tenure does.

~UTI Bank starts at 9.75 percent (up to five years) and goes up to 10.75 percent (more than 15 years), while their floating rates start at 7.75 percent and go up to 8 percent.

~The State Bank of India's fixed loans start at 8 percent and go up to 8.75 percent, while the range for floating loans is 7.75 percent to 8.5 percent.

~HDFC is offering its floating rate loans at 7 to 7.75 percent, depending on the loan amount.

Despite the fact that interest rates are moving northwards, the rise will not be drastic. It should be in the range of 0.25 to 1 percent. Of course, it will still mean you are paying more to pay back your loan.

As the age old adage goes: What goes up must come down. Let's customise it to today's financial environment: What goes down must go up!

What are you waiting for? Get cracking.

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Image: Uday Kuckian