Shreya took a 20 year home loan of Rs 50 lakhs 3 years back at a fixed interest rate of 10.5 %. Now, in the current falling interest scenario, most banks are offering loans at the rate of 9.00 % – 9.5 % p.a. Since the amount of loan is sizeable and she still has 17 years to go, she wants to explore if it makes sense to switch over to another loan provider and take advantage of the low interest rates. But, moving a loan is a time consuming and a cumbersome process, and there is a cost involved too. These are some things which people like her should know and evaluate before taking a decision to shift.
While we are on the topic of loan guarantee, (See previous post- Guaranteeing a loan? Be careful!) it is important to know why and when will the lending bank insist on a guarantor to approve your loan.
Jay and Vijay are around 35 years of age and are childhood friends, who went to the same school and later passed out from the same engineering college. Jay settled down for the standard software job and now, 13 years later is in the middle management position and draws a handsome salary. Vijay wanted to be an entrepreneur, started his own company which unfortunately is not doing that great and the performance is inconsistent. He does not have a fixed regular income. Hence, when he approached a bank for a home loan, the bank asked for a guarantor. Vijay approached Jay to help him out, and Jay signed up as a guarantor without much thought.