Home loan interest rates fall: should you refinance?

Home buyers couldn't be happier this festive season with banks and housing finance companies further slashing home loan rates. These lower rates will be available as a special festive season offer for a short period. Most banks have been steadily slashing home loan rates since the last quarter of 2020 after the Reserve Bank of India (RBI) started loosening the monetary policy.

Do these offers make it a good time to buy your first home? What should existing borrowers, who have taken loans at higher rates, do?

Home loan rates have never been lower, and contrary to expectations at the start of 2021, have fallen even further as we head into the festive season. Kotak Mahindra Bank recently slashed its home loan interest rates by 15 basis points (1 basis point=1/100th) from 6.65 per cent to 6.5 per cent. The reduced rates will be valid till November 8. HDFC Bank has reduced the rate from 6.75 per cent to 6.70 per cent. The rates will be applicable till mid-November.

Home loan interest rates table

"More than 20 banks and home finance companies are now offering loans for under 6.95 per cent; many large lenders are grouped in the 6.50-6.80 range," says Adhil Shetty, CEO, BankBazaar.com. Many domestic top-notch commercial banks and NBFCs such as State Bank of India, Punjab National Bank, ICICI Bank, Axis Bank, LIC Housing Finance, etc, among others, had slashed rates in 2020, with further cuts in 2021.

This is a good time to not just take your first home loan, says Shetty, but also to refinance your existing home loan if you're paying a much higher rate. "You can refinance with either your current lender or with a new one providing you better terms. The refinancing could save you lakhs of rupees in the long term.”

The Refinancing Option

You may first contact your existing lender and ask for a rate concession on the basis of your existing relationship and repayment track record. In most cases, you will not need any documents to initiate the request. You can do this online too.

However, if your lender does not entertain your request, search for an alternative lender. However, apart from the low rate, look for post disbursement services and quality of digital customer service as well. Also, take note of processing and administration fees before agreeing to a fresh loan agreement. Do the calculations first to see if you will save in the long term.

For Lowest Home Loan Rates

Consumers with high credit scores will get the lowest rates. While home loan rates are at record lows, borrowers with a lower credit score may have to shell out more. Neeraj Dhawan, Managing Director, Experian India, says a credit score above 700 may land you a good deal. This will also give you the freedom to apply for a loan through the best banks; a poor credit/repayment history will mean a lower score, in which case the borrower won’t be eligible for good home loan schemes.

"In India, only 7 per cent home loans sanctioned are given to customers with credit scores of between 300 and 700," says Dhawan.