How to take advantage of lower home loan rates

Banks are competing hard to woo customers slashing interest rates, anticipating a surge in demand in the property market in the upcoming festive season. Large banks such as State Bank of India (SBI), Kotak Mahindra Bank, Bank of Baroda, HDFC Bank among others have reduced the home loan rates.

But, how do you benefit from the ebbing interest rates? More importantly, is it truly worth it?

Experts suggest that it is not always like what it seems when it comes to loans. It is best borrowers approach their lenders and discuss their eligibility and other strings attached before switching to a lower interest rate.

It is necessary to understand that more than often the rate cut would kick in only if borrowers meet several other criteria as well.

For example, a salaried individual would always get loans at lower rates as compared to a self-employed. In here, the CIBIL score of an individual furher plays a key role here as banks judge a borrower's ability to pay the debt basis that.

Ratan Chaudhary — Head of Home Loans at Paisabazaar.com told CNBC-TV18 that another way an existing borrower can switch to a lower interest rate regime is by opting for a  balance transfer of loan.

That said, however, borrowers also need to factor in additional costs to be incurred in the balance transfer process, Chaudhary added.

“The new lender will consider balance transfer as a fresh loan and hence, will charge a processing fee, administrative fee, etc while processing the request. Hence, borrowers should avail balance transfer only if it leads to significant savings in the interest cost after factoring in the charges and the effort involved."

On top of it, a borrower shouldn't ignore the fact that there can be multiple reversals in the interest rate regime during the loan tenure, particularly in the case of home loans and other big-ticket loans with long tenures.

Hence, prospective loan borrowers should desist from making borrowing decisions just based on the prevailing interest rate regime, especially for those planning to avail floating rate loans, cautioned Chaudhary.

"Instead, loan applicants should widen their search for loans and opt for the best offer available on their credit profiles. They can anyways prepay loans in the future to reduce their overall interest cost," he said.

Meanwhile, the country’s largest lender State Bank of India (SBI) has launched a bouquet of offers for prospective home loan customers. On the other hand, Kotak Mahindra Bank has cut the home loan interest rate by 0.15 percent to 6.50 percent.