Tuesday, September 10, 2013

Switch your loan now!

Contrary to what the ET says I would like to present my view regarding why one should switch to a new lender in the current market situation. 

Whenever there is a high interest regime, the spread tend to be low i.e. interest rates move closer to the base rates. 
e.g. Axis Bank and BOB are offering home loans at the base rate (0 spread). Most other banks are also maintaining the spread for new customers at the minimum for roughly the following two reasons. 
1. They have to structure the final (base rate + spread) interest rates competitively, so there is a limitation on the likelihood of increased base rate. 
2. With high cost of funds, the reduction in base rate is already ruled out. 

As a result, the only sane option left for them is to move the base rate and the final interest rate as close as possible!

Therefore when you switch now, you will stand to gain in the long term. Whenever interest rates crash, you will automatically benefit as you have very less or even 0 spread. 

Don't hesitate to switch your home loan now!