Why Your Home Loan EMI is Still High

January 20, 2022


With fluctuating market trends and the latest RBI guidelines, the lenders have cut home loan rates. But do you still pay the same Home Loan EMI? In the wake of a high interest rate for home loan, there can be notable cognitions and you ought to be familiar to fix the skyrocketing EMIs. The newspapers and billboards are shrieking that there are drop-in lending rates, and it will reflect on the borrowers’ monthly instalments on the reset dates. Although, when you heed your home loan EMI, it is self-same. 

Wondering what went wrong? Everything seems to be puzzling. Don’t get flustered! With Square Yards everything seems to be a cakewalk. Here is an easy-peasy guide that encapsulates key reasons behind high EMIs and optimal ways to deal with them to enjoy correlated benefits. You will get to know why the lender has not imposed the cut rates till now and what you can do best on your part. We have covered an entire range of bewildering queries to diminish your hassle. 

Rates Are Still in Esplanade to Drop

Regrettably, numerous people out there aren’t familiar with the fact that, when a lender sets forth the rate cuts, it is applicable only for the present-day borrowers.

Home loan rates of certain existing borrowers are ground to the base rate system specifically when a bank is the finance provider. Whereas, in the case of NBFCs i.e., Non-Banking Finance Company, the borrowers are hinged to PLR i.e., Prime Lending Rate system.

Another, crucial thing you must know about is MCLR has been replaced with the base rates imposed by the banks. Thus, if you have availed of any loan from the year 2010 to 2016, then you will have to pay the interest rate imposed as per the base rate system. At the same time, if you have availed of your home loan from NBFC, then you are liable to pay home loan EMI deployed from the PLR system. 

However, the finance providers aren’t highly driven in advancing home loans at lower interest rates rooted in the PLR system. This replicates that the borrowers are bound to pay the higher interest rate for home loan. In simple words, the home loan borrowers are grappling with 9% or more home loan rates. 

How Other Borrowers are Accessing Lower Home Loan Rates?

It is possible if the borrower has interest rates based upon MCLR loans. Usually, banks quickly pass the rate cuts in the event of MCLR home loan borrowers in contrast to the base rate borrowers in addition to PLR borrowers. So, if you catch sight of borrowers accessing lower interest rates the key reason is the imposed rate system. Although this is one of the foremost impetuses, that is keeping your home loan EMIs up high. 

Do You Have an MCLR Housing Loan and Yet Grappling With High EMIs?

In the event of MCLR rate systems, the reset dates usually vary from one bank to another. There are possibilities that the bank hasn’t yet diminished the MCLR. As soon as your lending bank gets the reset date it will reflect the reduced rates on your monthly EMI in terms of the interest component. 

What Do You Mean by MCLR reset date?

A specific date on which the banks will reset their existing MCLR, and it will start reflecting on the present home loan rates is termed the MCLR reset date. In general, certain banks consider the MCLR reappraise once a year, whereas other lenders can put forward the reset value quarterly. Basically, it depends upon the bank from which you have availed your home loan. If in case, your bank has not reset the MCLR yet, then gradually wait for some time to enjoy the benefits of lower home loan rates and reduced home loan EMI.

Finance Providers Have Reset the MCLR rate but the Home Loan Rates Are Still High?

Scrutinize, whether you have a fixed rate or floating rate Home Loan. If you want to enjoy the benefits of rate cuts, then you must have a home loan with floating interest rates. As in the case of fixed rates, your interest rates are static, and you aren’t liable to grab the benefits of rate cuts. When you have a floating rate of interest, you can depict drop and drift in interest rates based upon the changing market trends. So, even after the drop of MCLR rates you are paying a higher amount of home loan EMI. Then there are chances that you have opted for fixed interest rates. Well, the best part is you can shift from fixed rates to floating rates anytime, depending upon the signed agreement. 

In certain cases, the banks and finance providers offer Home Loans with fixed rates only, In such scenarios, the fixed rate of interest is limited for initial loan tenure ranging from 3 to 5 years. Over time, after this time frame, the home automatically shifts to floating interest rates. Thus, it is essential to be familiar with the agreement terms before finalizing your home loan. 

Another point that adds to high home loan EMI is that the lender has not placed a request for up-to-the-minute rates. Yes!! You read it right. Lenders have to initiate a request to grab rate cuts. Numerous finance providers mention this clause with the loan terms which states that the borrower has to initially place a request to avail benefits of lower home loan interest rates. Although, the same is not applicable in case the interest rates show a drift. 

Consequently, when you depict that your home loan provider has cut the interest rates, but your EMIs are payable as per existing rates make a move. Have words with your lender and ask to switch the Home Loan rates to the present ones. Additionally, it is quite possible that notable charges are applicable for switching to new rates. Furthermore, some lenders charge a one-time fee for the switch within the entire home loan tenure.

Still Sustaining Sky High Home Loan EMI? Think About a turnaround!

Get a load of a switch towards the MCLR loan. Although, the MCLR home loans can’t be considered as an unblended floating rate loan, yet they are liable for rest more often compared to PLR loans. The borrowers can avail themselves of a lower rate of interest on MCLR instantly as the reset date arrives. In the event of the reset date of MCLR, the home loan interest rates persuading on that specific date are considered. Furthermore, immediately once the Reserve Bank of India updates the new interest rates, it will impact the current MCLR. Sounds fascinating? 

The foremost way to grab the best in minimal time is, count on lenders offering the shortest reset date option. This will help you to reduce home loan EMI as soon the RBI passes the new rates. If you are wondering to switch lenders to avail the same, then remember that the lenders impose certain charges in terms of conversion fees. It applies in the case of shifting from the base rate system to MCLR. 

Are you seeking a waiver of the conversion fee by the lender? Well, the good news is it is possible. Copious amounts of lenders relinquish the conversion fee for the borrower when there is a request for swift amidst PLR to MCLR. Mark one thing, that the conversion fee is highly negotiable. All you need to do is talk to the lender and make efforts for the same.

Plump for Another Lender!!

Redirecting to another lender or finance provider is a good initiative. But be cautious and explore everything about the switch. Carry out a cost-benefit analysis, to examine how much you will save and what charges will be incurred. This will help you out in understating whether the step is actually sensible and are there any chances of financial instability. All you have to consider in computing the cost infused with loan transfer together with the new home loan EMI and home loan rates. It will help to figure out whether the step is worth it or not. 

Loan costs typically comprise numerous fees and charges such as processing fees, application fees, stamp duty charges, imposed legal fees, in addition to valuation fees. This fee can cost up to 5% of the loan amount. So, it is better to be familiar with all such liable fees and charges to play on the safe side. 

The most essential thing about switching to another lender is you can’t rely only on the interest factor. Although the rate is a crucial factor but not the only one. Look for the reduction and cost savings you will end up with. If the foreclosure fee of the existing lender and the processing fee of the new lender’s costs more than the reduction and savings, then dropping the idea of a loan switch will be optimum. So, choose shrewdly, when it comes to home loan balance transfer. 

Bottom Line

Despite the above-drawn analysis, the home loan rates and home loan EMI for the borrowers remain speculative. Varying rate systems including MCLR, bank base rate, and PLR, acts as a significant factor to determine infused monthly installment. If you are still paying high EMIs even after cut rates, then the reason can be the type of interest rate i.e., floating or fixed or you need to request your lender to do the same for you. So, the best way to enjoy reduced EMI is to get in touch with your lender, have words, and look into your interest rates, and signed the agreement at the time of loan application. 

A quick and constant learner, Akhil can bring off any niche in demand with his expertise in simplifying complex. He believes in focusing on what's missing rather than adoring what's in his bag. When he is not busy typing away, he likes to watch his favourite football team, Arsenal! Being a lifelong Michael Jordan fan, he hopes to achieve the dream of meeting his idol one day. Currently, he is a master of finances with Urban Money.

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