Mortgages have gained much popularity in recent times considering their ease of procurement and the provision of keeping property as a collateral. The only thing that deters a borrower is the fluctuations in mortgage loan interest rates. As such, Mortgage rate lock ensures that the rate of interest levied on your loan remains the same throughout your tenor. It is a guarantee that a mortgage lender will honor a specific interest rate at a specific cost for a predetermined period. This article will discuss the right ways to determine mortgage loan interest rates and how to keep them lower.
How to lock in current rates before they rise any further?
Borrowers often prefer floating rates over fixed rates while availing mortgage loans, as they offer lower interest rates and flexible terms. However, RBI’s decisions to increase repo rate is an anticipated one. If such a rise happens suddenly again, the interest rates can increase for mortgage loan borrowers who are using floating rates.
Therefore, it can be beneficial to switch to a fixed rate. It will help them ensure a fixed rate of interest despite the dynamic economic conditions in the market increasing the applicable rates. The interest rate will never increase, providing a sense of security and stability to the borrowers.
However, there are pros and cons to both, floating and fixed rates. Borrowers should choose either of these, keeping their financial conditions in mind. Consulting with a financial advisor can be beneficial before shifting to locked rates.
Research the current mortgage loan interest rates
After knowing what a mortgage loan is, it is advisable to determine its interest rates. Moreover, it is also beneficial to check the additional charges and fees of mortgage loan. While the interest rates for mortgage loan in India differ across lenders and banks, it usually starts from 6.65% and can rise to 13%. Moreover, there are other charges, like the processing fee, which ranges between 0.25%-3% of the total amount.
Rising mortgage loan interest rates
There is anticipation regarding an increase in repo rate from the RBI, which will likely increase the mortgage loan EMIs. Lenders usually try to reduce the risks of rising interest rates by charging higher rates to new borrowers. Therefore, borrowers should lock their interest rates if they already have approved mortgage loans. They can consider the following options to reduce their interest out:
- It is advisable to avoid going with the first lender they come across but to do a bit of research first.
- Borrowers should consider longer loan tenure.
- They can make a higher down payment to reduce a significant amount of loan.
- Finally, they need to maintain a good credit score.
Refinancing and its importance
It is the dream of any borrower to lower the interest rates of their mortgage loans. This is possible with refinancing. This enables one to switch from the current mortgage loan to another, which can be done within one bank or different ones. Borrowers can consider this option within two to three years of a mortgage loan. Unfortunately, this is when the rates for the typical mortgage loan package rise.
Costs of refinancing
Refinancing a mortgage loan does not come free of cost. Most banks require borrowers to pay legal and valuation fees. These can escalate up to Rs.20,000 or more. Moreover, there might be penalty fees if a borrower considers refinancing during or before the “clawback” period.
Here, credit score can play a part to determine mortgage loan EMIs. For instance, a borrower with a good credit score who took a mortgage loan in 2005-2006 is likely to pay interest rates of 6%-7%. However, the rates have reduced to around 4% currently. Therefore, if the EMI was around Rs.60,000 with the initial interest amount, a borrower can bring it down to Rs.40,000 by refinancing, saving a hefty Rs.20,000 per month. Moreover, there is an option of reducing the loan tenure with refinancing. The only downside here is the cost of refinancing, which might not be affordable.
Borrowers looking for mortgage loans have the ability to access pre-approved offers. They can check their pre-approved offers by entering their name and contact details to avoid excessive burdens of interest rates. Leading financial institution extend such offers on various products like mortgage loans and loans against property. This helps to expedite the loan application procedure.
In the End
Thus, as this article points out, there are possibilities of growth in home and mortgage loan interest rates at any time according to the market. It is, therefore, advisable to lock the interest rates before it increases or consider refinancing to reduce them.