Wednesday, May 18, 2011

The must-ask question before taking a loan

HDFC has increased its RPLR (Retail Prime Lending Rate) by 50 basis points wef 16th May 2011. 
Now it "stands tall" at 16.00%

At the time I took my home loan in July 2008, 
the RPLR was 13.50%, and I was offered the loan at 10.25% ( i.e. spread of -3.25 over RPLR)

Had I not paid them multiple times (0.5% of outstanding principal each time) to "reduce" the interest rate, the interest rate would have been 12.75% (i.e. 16 - 3.25 = 12.75), whereas HDFC is still offering interest rate of 10.25 for the "new" new customers. 

Understand these consequences before you sign the loan agreements. 

The must ask question to your lender before you take any home loan: 
What are the maximum and minimum interest rates you are charging to your existing home loan customers?
I wonder if you'll at all get the answer on paper. Let me know if you do. 

(As an extension to this post, I will write on the consequences of spread changes, better spreads offered to new customers, and why should you go for Base rate instead of PLR)

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