Base Rate changes and impact on Home Loans

What is the importance of Base Rate

Home Loans which are on floating rates have a simple calculation i.e. applicable rate = base rate + margin

Margins typically remain fixed during the tenure of the loan and the only thing that changes in a floating rate loan is the bank’s base rate.

Hence any change in the base rate will mean a change in the applicable rate for the home loan borrower.

With rate cuts being announced by RBI and subsequently by banks also, a reduction in base rate will mean a corresponding reduction in the applicable home loan rate. Which in turn means a reduction in the EMIs, or in many cases a reduction in tenure.

Base Rate changes will impact EMIs or tenure of Home Loan

The reason banks (or customers also) may want to change tenure of their home loan instead of the EMIs is to ensure that the ECS mandate or Standing Instructions given for the loan re-payment are not required to be re-done every time the bank changes the base rate. Hence base rate changes may be a good time to evaluate if you should go in for a Home Loan transfer or not.

The Home Loan Rate changes may have a lag

Also the impact of the base rate change may not be immediate. This is because loan rates are reset at specific dates during a financial year. While each bank has its own set of reset dates, these are typically 1st April, 1st July, 1st Sep and 1st Jan in the Indian context. Hence even if the base rate change is announced on 3rd March of a year, the home loan EMI or tenure change will come into effect by 1st April only.

SlashEMI helps track the home loan rates and pings you about potential opportunities to switch your home loan.

Credit cards balance transfer – process, advantages, fees

Credit Cards allow the end user an option to re-pay the balance due in a delayed fashion, wherein the total amount due in a particular cycle is not paid back in totality. While this comes with a high interest charge, it might be useful for those who are caught in a tough situation. So long as one keeps paying the Minimum Amount Due, the credit card company would extend this facility and also earn a lot more money.

The total outstanding amount that a credit card customer owes the bank is called the Balance Outstanding. And the option or process of transferring this outstanding balance from one credit card to another is called Credit Card Balance Transfer.

Why should I do a Credit Card Balance Transfer

As a credit card user with some outstanding balance on your credit card(s) you might want to explore the option of a balance transfer in the following scenarios:

  • Shifting the balance to a lower interest rate card. You might have a card with a lower APR/interest rate and it would make more sense to shift the balance there as the interest pay-outs would decrease. A lower APR might be available from a credit card company as a way to acquire you as their customer. Usually such offers have a very low introductory interest rate for a specified period. Moreover, most balance transfers include a balance transfer fee – a small percentage of the total outstanding amount. Hence when evaluating a decision to shift balances due to pay-out considerations, ensure that you have calculated the overall impact properly. Try using a Credit Card Balance Transfer Calculator for this.
  • To consolidate the credit Card debt. Understanding and managing multiple credit cards can be a painful exercise as it might involve tracking payments, offers, outstanding etc. Such a task can become even more cumbersome if there are outstanding balances in these cards. It would make sense to consolidate the outstanding debt into one or fewer cards.