Before You Buy

The spread: the one rate you negotiate

Your rate has two parts. One is the repo rate, which the RBI sets and nobody can negotiate. The other is the spread — the bank's margin on top — and that is fixed for you, for the whole life of the loan, on the day you sign.

The spread depends mostly on your credit score and on whether you ask. Two people buying in the same building, from the same bank, on the same day, can be on spreads half a percent apart for twenty years.

How to ask. Check your credit score before you apply; above 750 gives you leverage. Get two written offers. Ask each bank, in writing, for its spread over the repo rate — not just the headline rate, which moves. Then ask the bank you prefer to match the better spread. Many will.

EBLR or MCLR, and why it isn't a detail

These two words decide how fast a rate cut reaches you, and the difference is not small.

EBLR — also called RLLR at some banks — is tied directly to the RBI repo rate and must be reset at least once a quarter. When the RBI cuts, your rate falls within three months, whether or not you ask.

MCLR is calculated by your bank from its own cost of funds. There is no published formula you can check. It resets annually, and it falls more slowly than the repo rate does, because a bank has little reason to hurry. Roughly a third of floating-rate home loans in India are still on it, mostly because they were taken before 2019 and nobody suggested switching.

If you are already on MCLR, you can switch to EBLR later — but it is cheaper to start on the right one. Banks charge a conversion fee, usually a few thousand rupees, and they are not required to offer it unprompted. In a cutting cycle, a single year on the wrong benchmark costs considerably more than the fee. In a rising cycle the calculation reverses, which is exactly why nobody can give you a blanket answer.

Fixed, floating, and the hybrid pitch

Almost every home loan in India is floating, and most borrowers never actively chose that. It is worth understanding what the alternatives are and why they are offered.

Floating. Your rate follows a benchmark. You carry the risk of rises and get the benefit of falls. It is the cheapest option at signing, because you are absorbing the uncertainty rather than the bank.

Fixed. Your rate is locked. The bank is now carrying the risk, and it charges for that — typically one to two per cent above the floating rate on offer. Read the terms closely: many Indian "fixed" home loans are fixed only for an initial period, after which they convert to floating. A genuinely fixed twenty-year home loan is rare here.

Hybrid. Fixed for two or three years, floating after. Marketed as the best of both. In practice you pay a premium for the fixed period and then inherit whatever the cycle is doing when it ends, which is precisely the risk you paid to avoid.

There is also a real asymmetry worth knowing. Fixed-rate loans frequently carry prepayment penalties, while floating-rate loans to individuals should carry none at all. If closing early is part of your plan, a fixed rate can cost you twice — once in the premium, once in the penalty.

Your sanction letter: four lines that matter

Before you sign anything else, ask for the sanction letter and read it. It is the document that sets the terms of your loan, and four things in it govern everything that happens for the next two decades.

If the bank offers only a verbal summary, ask for the letter in writing before you sign. Do not accept a phone call or a brochure in its place — you want the document, because the document is what you will quote back at them later.

What they sell you alongside the loan

The loan is the product you asked for. At the point of signing, several others will be added, usually presented as requirements rather than choices.

Loan protection insurance. A policy that clears the loan if you die. The idea is sound — a family should not inherit an EMI. The execution is often poor: the premium is frequently added to the loan itself, meaning you pay interest on your insurance for twenty years. A plain term life policy for the same cover, bought separately and paid annually, is usually markedly cheaper.

Property insurance. Reasonable, and often genuinely required. But you are not obliged to buy your bank's policy. Ask what it costs, then price the same cover independently.

Processing and administrative fees. Negotiable more often than you would think, particularly if you have a competing sanction letter in hand.

The single most useful sentence you can say at signing is: which of these is legally required, and which is optional? Ask it out loud, and ask for the answer in the document. Regulators have been clear that bundling cannot be made a condition of the loan, but the practice persists because very few borrowers ask.

The prepayment reserve

Chapter four gave you a number: how much more a month this loan would need if rates rose 2%. Here is the most useful thing you can do with it.

Set that difference aside every month from the start, in a savings or liquid account you control. Call it your prepayment reserve.

If rates rise, the reserve pays the part-payment that cancels the rise before it reaches your loan. LoanRepo can tell you the exact amount after each RBI decision; it is usually a fraction of a year's reserve.

If rates stay the same or fall, the reserve still works for you. Put it against the principal once a year and the loan finishes years early. Early prepayment does the most good, because every rupee removed in the first years cancels the most future interest.

Either way you are paying a little more than the bank asked for, by choice, and it turns the rate cycle from something that happens to you into something you've already planned for. Keep six months of expenses separate before any of it goes to the loan; money put into a home loan is hard to get back.

After you sign: what happens at a reset

Your reset is the only date in the year when your loan can change. Everything else is noise. Here is what to do when one arrives.

Wait for the statement covering that month, then check two numbers and only two.

The effective rate. Did it move, and by how much? Compare it against the repo rate change that preceded it. If the repo fell by 0.25% and your rate fell by less, ask why.

The remaining tenure. This is the number that quietly absorbs everything. Write it down every time. A tenure that grows while your EMI stays flat is the mechanism from chapter three, happening to you, in that month.

If your statement does not show remaining tenure — many do not — ask for it. The bank's system knows it exactly. A request by email creates a written record, which matters if you later disagree.

Buying a flat that isn't finished

Everything so far assumed the loan is paid out in one go and the full EMI starts the next month. On a flat that is still being built, that is not what happens.

The lender pays the builder in stages, as the building reaches agreed points. You pay interest only on the amount paid out so far, which is usually called the pre-EMI. The full EMI starts when the last payout is made or at possession. Which of the two applies, and how the rate is re-set in between, is written in your sanction letter, and lenders differ.

The full EMI. If your 20 years count from possession, the EMI is about Rs 68,165. If they count from the first payout, only 17 years are left and the EMI is about Rs 73,057. Ask which one applies before you sign, because the difference is about Rs 4,900 a month.

If the rate moves. On a repo-linked loan the rate is re-set at least every quarter, and a rise applies to everything already paid out and to every later payout. If the rate rose by 0.25% a quarter for eight quarters, the same loan would cost about Rs 12.8 lakh in interest-only payments, the last month would be about Rs 68,300, and the EMI at the end would be about Rs 78,500. That is an illustration, not a forecast.

If possession is late. Once the whole loan has been paid out, every month of delay costs about Rs 55,000 in interest on this loan, on top of any rent you are paying.

Where the safeguards may stop. The RBI rules that make a lender tell you about a change in your EMI or tenure, and offer you a choice, were written for loans repaid by EMI. Do not assume they apply while you are paying interest only. Ask the lender in writing how they apply.

None of the figures here include GST, stamp duty, registration, or the rent you may pay while you wait. Add those before you decide how much you can afford.

What this book cannot tell you

It cannot tell you where rates go next. Nobody can, and anyone who says otherwise is selling something.

It cannot tell you whether to buy now or wait, which home to buy, or which bank to use. Those depend on your income, your family, your job and your plans — none of which a book knows.

What it can do is make sure you sign knowing what the chart doesn't show: that the rate will move, what each direction does to your loan, and that you have a plan for either. After you sign, The Quiet Years picks up where this book stops.

The words, plainly

Everything in this book, defined once.

About this book

Before LoanRepo, I spent close to a decade advising retail investors as a financial adviser. What brought this book into existence was not an idea. It was the same conversation, repeated for years.

A client would call, puzzled, because their loan balance was not falling the way they expected. They had done nothing wrong. They had paid every instalment on time. And they had no way of knowing that the rate cycle had quietly added years to the end of their loan, because nothing they received in the post had ever mentioned it.

Every time, the explanation took about fifteen minutes. Every time, the reaction was the same: nobody told me. And every time, the information had been sitting in public records the whole while, in a form nobody had bothered to assemble for the person it affected.

This book is the part of that conversation that should have happened before signing. The fifteen-minute explanation, written down, with the arithmetic worked out and the questions you should be asking listed in an order that gets answers.

It has no sponsor. LoanRepo earns nothing from your bank, nothing from any lender, and nothing different depending on what you decide to do. That independence is the only reason this book can say some of what it says.