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How to negotiate with bank for better interest rate for home loan.

There’s good news on the home loan front. Last week, the country’s largest bank, State Bank of India (SBI), cut interest rates on its home loans, unleashing what appears to be a rate war. Indian Overseas Bank has followed suit. The catch here is that instead of bringing down the base rate, to which all home loans are linked and which would benefit both new and existing borrowers, banks are choosing to bring down just the spread, which means that only new borrowers stand to benefit. The interest rate on home loans has two main components—base rate and spread. Base rate is the rate below which the bank cannot lend, and spread is the margin based on customer- and product-specific factors. In the case of SBI, for instance, while the existing borrowers will pay 10.5% interest, of which 10% is the base rate and 0.5% is the spread, new borrowers will end up paying only 0.25% as spread, or 10.25% as interest rate.

Examine your loan and generate the discount points. These are the profit points for the borrower and directly affect the lender what rate they offer.

Ask your lender to give you several concessions with a lower rate and compare how the points on your loan change. Shop around to your personal bank and mortgage brokers to compare as well.

Evaluate your best deal by comparing your monthly payment with your actual cost of the points and fees. After you’ve determined what you can live with, go back to your lender and ask if you can lower your rate even further.

Portray yourself as they are not the only bank that can help you with the loan you can decline the deal if they can’t negotiate with you. The better your deal gets the less the lender will profit and some brokers will be more desperate to keep your loan than others.
Contact your original lender if you are refinancing. Your fees and costs may be lower and you can keep the same servicing. Ask the lender to transfer your loan to the home retention department to apply for a loan modification if you’re dissatisfied with your offers.
Call and negotiate with the lenders. The goal is to get as close as possible to the rate offered to the low rate and the costs of the low closing cost high rate quotes. Tell the originators that you are choosing between them and one other company. Let them know what the other lender is offering and that it needs to be beat for you to fill out a full application.
Educating yourself on the loan you take up for your home is important to prevent yourself from high finance fees or paying a high rate on the money you borrow. The bottom line this is not the time to accept any deal you are offered. Examine your options carefully and challenge your lender before signing any paperwork.

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