Bank Charge for reducing home loan interest rate


#1

I have taken Home loan from Co-Op Bank last year with interest rate of 9.99%, now rates has reduced to 8.50%, I asked bank to reduce my interest rate but bank is charging 2% on balance loan amount in order to reduce interest rate.

Is this valid? Is there any RBI mandates that bank cant charge for reducing rates

Also in future if I make prepayments they will not reduce the EMI rather will reduce Loan Tenure and will keep EMI amount same, is this is also valid? any RBI regulations for such cases

Please advise, thanks for help


#2

Hi BeSimple,

We can understand your frustration and empathise with you. It is true that lending firms do not decrease rates automatically for existing borrowers when they start offering lower interest rates for new borrowers. It is also true that they charge a conversion fee for granting lower interest rates. This is irrespective of whether it is a bank or Non-Banking Finance Company (NBFC).

While some say that their conversion fee is a one-time charge, there are others who charge every time you want interest rates lowered. They do increase interest rates automatically when interest rates rise. Details about this will be mentioned in your loan agreement. If you are not happy with your Home Lona provider, you can consider a balance transfer. But do check the terms regarding the processing fee, conversion fee, and other charges before you do.

In case of prepayments, lenders should allow you to choose between reducing your EMI or your tenure. You can insist on having a lower EMI after your prepayment. We suggest that you talk to your bank about it.

Cheers,
BB Expert


#3

Hello

Thanks for taking time to reply

Aren’t there any RBI Mandates for all this? or Is bank free to act as they feel


#4

I have taken home loan from LIC HFL, they exercise the practice of charging more than INR 1000/- + GST to reduce interest rate charges and they will not do it automatically.
How we can ask them to make it low as and when they reduce the interest rates?


#5

Hi Ashwinkumar,

We can understand your frustration and empathise with you. It is true that lending firms do not decrease rates automatically for existing borrowers when they start offering lower interest rates for new borrowers. It is also true that they charge a conversion fee for granting lower interest rates. This is irrespective of whether it is a bank or Housing Finance Company (HFC). Ask your bank to send you an email or SMS when interest rates are changed. You can ask them if you can visit their website to know about changes in interest rates. Get the website link from them.

If you are not happy with your Home Loan provider, you can consider a balance transfer. But do check the terms regarding the processing fee, conversion fee, and other charges before you do.

Not happy with your bank? Want a better Home Loan provider? Click here to apply.

Cheers,
BB Expert


#6

Hi BeSimple,

Banks or other financial institutions offering loans are not obliged to send emails or SMS for interest rate changes. They will announce the change in interest rates on their website. However, they might automatically send an email to you if they increase rates for your loan when interest rates rise. As of now there is no RBI mandate for announcing interest rate changes apart from financial institutions announcing it on their website.

Not happy with your bank? Want a better Home Loan provider? Click here to apply.

Cheers,
BB Expert


#7

thank you