One of the major mysteries for home loan borrowers could be the home loan conversion fees. A common complaint made by them is the interest rates being more than the interest rates offered to the new borrowers in spite of them paying the home loan conversion fees several times. One reason for this problem could be that the existing borrowers have no other pattern to compare. The home loan interest rate fixed for new borrowers should be the pattern for the old borrowers.
The home loan conversion fee is imposed by the state bank or housing finance company to reduce the interest rate of your home loan. It is usually charged at 0.25 percent or 0.5 percent in addition to the remaining amount of the original loan. Some banks restrict the upper limit completely.
The borrower needs to keep in mind if the loan is partially spent the home loan conversion fees will be levied on the remaining amount of the original loan in addition to the unpaid loan amount, which might not be beneficial to the borrowers.
Let’s take a look at some of the popular misconceptions about home loan conversion fees :
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There Is No Waive Off For Home Loan Conversion Fees :
The bank or the housing finance company may waive off your home loan conversion fees provided you are proven to be a good customer by paying off all the EMI’s on time. Yet, this might not be as easy as it sounds. You might need to play the game of balance transfer by informing your bank that you are planning to change the bank due to the interest rate being high.
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Updated Interest Rate Will Be In Par With The New Borrowers :
It is one of the common myths that once a borrower pays the home loan conversion fees, his interest rate will be in par with the new borrowers. Usually, the borrower does not check the revised interest rate in advance. In such cases, it is suggested to negotiate with the bank.
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It Is Compulsory For The Bank To Reduce The Home Interest Rate :
The bank is not obliged to reduce or waive the home interest rate even if the borrower is willing to pay conversion fees. One solution for this could be to balance transfer the home loan.
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Restriction On Number Of Times On Availing Home Loan Conversion Fees Offer :
You might not hear this from the banks often but some banks have the policy to offer home loan conversion fees only once or twice during tenure.
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Once In A Lifetime Fees :
Many borrowers assume that once the home loan conversion fees are paid than for the remaining tenure their interest rate will be in par with the new borrowers. Many borrowers blame the Reserved Bank Of India but the RBI isn’t to be blamed at all. Always make sure to estimate the financial effect before you accept an offer from your bank to reduce the home loan interest rate. You need to check the net savings and take a wise decision.
Conclusion :
Always make sure that you calculate the financial impact before agreeing to accept an offer from the bank to reduce the interest rate. You need to check the net savings. Say, you are planning to repay the loan in the next couple of years then it might yield you any financial benefits because you will pay an X amount as conversion fees but you will need a specific number of months savings that will be adjusted against X.
