How will the RBI policy on interest rates impact your home loans? Will the home loan rates decrease or increase?

Should you look at interest rates or property rates while making a decision to by your dream home?

Can you take action against your home loan lender if the bank gives loans to new borrowers at lower rates and doesn't reduce rates on your loan? If yes, then what action can you take?

Home loan expert Harsh Roongta answered these and other home loan related queries in a chat with Get Ahead readers on October 31.

For those of you who missed the chat, here is the transcript.

balaji asked, Can you Explain how CRR affects the Interest rayes for loans?

Harsh Roongta answers, CRR or Cash Reserve Ratio means that portion of their deposits that the bank has to keep with RBI for a rainy day. It means that the bank is unable to lend that amount to its consumers. An increase in CRR (from 7% to 7.50%) means that all banks put together will need to deposit an additional Rs 16,000 crores with RBI by mid-november thus pushing that much money out of the lending system.

Normally this would mean a shortage of funds and hence an increase in interest rates. But currently there is so much money sloshing around in the system that this is unlikley to result in an increase in interest rates.

Padma asked, Hi Harsha,Good day to you. I have got home loan from UTI in January 2007 at the then interest rate of 9.5% and current rate is 10.75%. The amount is 27 lakhs and my EMI comes to 25,857. What is your take on prepayment? Is it not wise to invest in Mutual Funds with the same money instead of prepaying the home loan?

Harsh Roongta answers, Normally if you have surplus money then it will make sense to pre-pay a loan. However if you keep in mind the emergency needs as well as the heirarchy of prepayment (if you have loans other than home loans also) as well as the tax breaks your decision will be better infirmed one. You can read a detailed article on this by cutting and pasting this link on your browser. http://www.apnaloan.com/articles/home-loan-india/Home_loan_prepayment.html.

ramaih asked, Hello Harsh Sir, IF CRR hike happens why Auto sector is affected?

Harsh Roongta answers, If you see my earlier answer on the impact of a CRR hike then you will realise that this may result in (though in this case it may not happen for the reasons mentioned in that answer) an interest rate hike. The demand for auto is very dependent on availability of finance and hence the possible negative impact on auto sales takes its toll on the share prices of auto companies.

crsree@rediffmail.com asked, is existing ABN Amro home loan custoemrs will benefit in cut in rate?

Harsh Roongta answers, Do not wait to find out. If you have paid your installments in time for the last 2 years at least check out the interest rates available in the market (this link may help - http://www.apnaloan.com/home-loan-india/rates.html )and call your bank to say that you will shift your loan unless they match the best deal that you can get in the market. If they are willing to match the rate then it will be worthwhile for you to stick with your existing bank to avoid the administarive tasks involved in changing lenders.

narender asked, which is better interest rate fixed or floating?

Harsh Roongta answers, In the current market scenario where genuine fixed rate loans are very expensive it is still worthwhile to stick to floating rates with all their shortcomings. As mentioned many times before this is not a one time decision but needs to be reveiewed at least every 6 months. 

ravinderpal asked, Dear sir, I had taken a 20 yrs. loan from LICHF of 24.5 lacs. They are charging me EMI of Rs.23126, what is the interest rate? Some three months back this Emi was 22372, i had issued them new amount cheques but they had presented in one month both (old & new) cheques, after long follow up & pressure they have returned me extra charged EMI but without any interest. Am i not eligeble for getting interest for that period?

Another thing,actually my sanctioned loan amount was 30 lacs but got a cheque for 24.5 lacs as balance was for construction, which i never started & infromed them also. For first 3 months they charged me EMI for 30 lac loan amount,then i wrote to Area Manager & he adjusted extra charged amount in my outstanding Loan amount but again without any interest given to me. Pls.suggest if can i sue them for this lapse on their part?

Harsh Roongta answers, There are 2 aspects to the issue prsented by you. You seem to have got a construction loan to buy a plot and do a self construction on that and have bought the plot but are now not planning to do construction. That is my understanding of your query. Your queries appear to be correct and you should be entitled to compensation for the delay in refunding/adjusting the excess amount from you. Please work out the materiality of the amounts involved. If the amounts are material enough you can take up the matter further by complaining ot the top officials of the concerned HFC and if no redressal is made you can also file a complaint with the National Housing Bank which the regulator for Housing Finance companies.

You can also file a case in consumer court. Another aspect of the query however is that if you read the agreement carefully you will find that you have violated the terms and conditions on which the loan was given to you by not doing the constructoion within the indicated time frame and the HFC can declare you as in default of the loan agreement and require the entire loan amount as due immediately. Please take this into account before you take any action in this matter.

Pramod asked, I want loan for also unauthorised Colonies in NCR Delhi.

Harsh Roongta answers, Niether the banks nor housing finance companies will give you a loan for buying in unauthroised colony. If you are hell bent on buying there you can consider taking a personal loan (expensive and quantum depends on your returned income) or a loan against the security of another property or financial assets such as shares, bonds, jewellery, insurance policies with high surrender values, etc.

Thomas asked, Today i have applied House loan on citibank, and the person is commited for 10.25% even though the bank is giving for 10.5%, He is telling that since your properly builder is good and the company where you work is also good corporate it is possible?.... as per this new RBI news is it possible for my loan for 10.25%.

Harsh Roongta answers, Why not. check around in the market and who knows you may get even better deals. But first get this person to send you an email confirming the rate at which he will give you the loan as well as the no. of days for which the rate offer is open. Also do not forget it is a floating rate loan which can be increased (and sometimes even decreased) at any time.

Ramakant asked, Sir i have taken home loan from Bassin catholic co-op Bank on reducing balance i had given post dated cheques 7th of every month to the bank. but the problem is these cheques are deposited as per Br.Manager wish ie,16, 22, 28 and even 3rd of next month. i had given in writting to the bank for the reversal of delays in depositing post dated cheques but no reversal given to me inspite of bank following RBI rules. Please advise.

Harsh Roongta answers, My understanding is that the bank is charging you delayed payment charges for its own delay in depsoiting the post dated cheques. If this is indeed the case you should get immediate relief by first filing an offical written compaint (of if the bank has a website on the greivance section of the bank's website) and if no action is taken within 2 weeks you should file a compalint with the banking ombudsman (www.bankingombudsman.rbi.org.in) . you are bound to get relief in ths matter.

BalaBlr asked, Most banks work with their internal PLR as baseline. Why is more transparent method not popular - such as baselining the bank's FD rate? Is there an issue with such schemes, that very few banks offer in the market?

Harsh Roongta answers, This issue has now cuaght the attention of the regulator as is eveident form the interview given by the RBI governor. We can expect some regulatory nudge soon and hopefully the Indian banking sector will begin moving in that direction soon.

yhusein asked, What is the current interest rate in the market for Smart Home loan products for loan amounts over 20 lakhs?

Harsh Roongta answers, Normally these kind of products are priced about 0.5% extra above the bank's prevailing floating rate loans.

tom asked, hi Is it a good time to take home loan?

Harsh Roongta answers, Loans are only an means to the end of owning a home. As long as you are buying for the purpose of self residence a good time to buy is as and when you can afford to buy the home. Interest rates are normally floating and will go through cycles of increase and decrease through the long tenure of the loan.

Kaushal asked, I am having home loan from SBI [Get Quote] at 9% fixed. Do I need to change?

Harsh Roongta answers, Just check that it is still at 9% (even fixed rates can be reset by a bak on the happening of certain conditions or after a period of time). If indeed it is still 9% don't even think of changing.

Mohan asked, Hi, I bought a house worth Rs 33lacs in Dec '06. At that time my salary was just RS 5.9lacs/yr and i could get a total home loan amount of just Rs 25lacs from HDFC [Get Quote]. Starting Jun '07, my salary got increased to Rs. 8.4lacs/yr. During Aug '07, i took the occupation of that flat, but i had to go for a personal loan of 7 lacs to pay the balance amount to the builder. right now the EMI which i pay (incl. personal loan EMI) RS.42,000/-, which is too heavy for me. Can you suggest me a way to get some relief? (like if there is anyway to make this personal loan clubbed with home loan from a different bank?) Thanks so much for your help... Mohan.

Harsh Roongta answers, You can approach your existing lender itself to check if they will give you an additional loan based on your new income (you can use this loan to prepay a portion of the personal loan -- even if you have to pay a substantial prepayment charge it may still be worth it since the additional loan from the existing lender will come at a mcuh lower rate than a personal loan. If your existing lender is unable to give you an additional loan (since you only have a 10 month track record) you can check in the market for a lender who will takeover the existing loan as well as give you a top up loan. 

adityajoshi asked, Harsh,how long will it take 'approximately' for RBI to reduce the interest rates? and will there be any boost for this housing sector after that?

Harsh Roongta answers, RBI is an important and key player in the market but is not the entity that decides the interest rates charged in the market. so therefore whilst RBI can exert significant influence on the interest rate charged on loans it does 'fix or reduce interest rates' as assumed by you.

aaryan asked, while there is an increase in interest rate, banks raise the interest rate for all its coustmer immediately, where as when they r to attract the new coustmers, they r giving loan at low interest rate, which is a violation. To whom we should have complaint to protect oursel, i m an existing coustmer of ICICI bank [Get Quote].

Harsh Roongta answers, The RBI seems to be siezed of this issue and hopefully we should see some action in this regard soon. Meanwhile aware consumers such as yourself can benefit by threatening to switch their loan to another lender whereupon if you have been a regular consumer your existing lender may itself reduce the rates for you as well. However this threat will only work if you have paid all your installments on time not only on this loan but on all your other loans as well.

brishty asked, why RBI is now in a rainy day situation?? what made RBI to increase CRR??

Harsh Roongta answers, RBI is obviosuly not in a rainy day situation. keeping CRR is a universally accepted way of having spare cash available for emergencies faced by the concerned bank itself.

Pbh asked, Hello Sir, How does home loan eligibility get decided? Is it based on price of the property or borrower's income?

Harsh Roongta answers, Both. It is the lower of 85 to 90% of the cost of the property or income eligibility. To calculate your eligibility as per income you can use the following tool. http://www.apnaloan.com/loan-advice-india/simple-loan-eligibility.html.

brishty asked, Hi,Good Aftn. i bought a homeloan for 14.5 lakhs with a interest rate of 10.5% floating rate. How increase in CRR affect my interest rate? Could you please explain what are the consequences borrowers face because of this?

Harsh Roongta answers, already answered. please read the chat transcripts given below.

vinod asked, How is the outlook for home loan interest movement in next six months? I am thinking of buying a home.

Harsh Roongta answers, You should be more concerned about the outlook for property prices rather than interest rates as anyway most consumers choose floating rate loans (and in the current scenario correctly so) and so are anyway exposed to the variations in interest rates.

yogesh_mohite asked, I want to switch over my home loan form HDFC to Punjab National Bank [Get Quote]. PNB is giving me 1.s5 % less interest than HDFC. My loan amount is 12 lac. Will there be any hidden issues in this?

Harsh Roongta answers, 1.5% is a huge margin and should normally make it attractive even after taking into account the prepayment charge (normally around 2%) as well as the processing fee (normally around 0.50%) that you will pay to the new lender.

jana asked, How Many Home loans are eligiable for an individual person. Since i came to know that we can't take more than 3 H/L at any time .. Pls clarify.

Harsh Roongta answers, There is no statutory restrictions on the number of home loans that you can get. theoretically you should be able to get any number of loans that your income can justify.

shyam asked, why do bank decalres some Territory as Unauthorised? Why we do not get the loan even if the proper approved construction is going onm same Territory?

Harsh Roongta answers, I can understand your confusion. Some banks based on their prior experince with funding home loans in a particular area realise that the percentage of defaults happening for home loans given in that area are far higher than normal may actually ban all loans in that area as 'negative area' even though the construction may be approved and your income will justify the loan.

Sometimes there could be physical reasons for this such as bad access or problems with general land titles in the area as a whole. But you will surely find other banks that are willing to fund you for that area. 

Sanjeev asked, If CTC is 5 lacs then how much loan one should take so that he can pay easily?

Harsh Roongta answers, From a consumer perspective if one third of your net take home pay goes towards home loan repayment it is considered satisfactory. However this is just a thumb rule and even higher percentage may be okay especially if you are at the begining of your career and your icnome is expected to rise sharply in the future.

prashanthg asked, Hi, I have 2 loans HDFC at 11.5% floating on one property and Citibank at 8% on another property. I want to close HDFC and transfer the Citibank to the HDFC loan property. Is this possible?

Harsh Roongta answers, Loans and properties go together. you cannot transfer loans to another property. You will need to close your existing loan and take a fresh loan for another property.

Harsh Roongta says, Ok folks. I hope you all enjoyed this as much as i did. If you still have ome queries you can logon to www.apnaloan.com and ask your queries online. http://www.apnaloan.com/home-loan-query/query.html See you at the next chat.