- Shall you change your HDFC Housing Loan tenure?
- Yes, if you want to yield savings, read this to know how much you can save
Firstly, HDFC Bank sources housing loans for HDFC Limited, the parent company of the Mumbai-headquartered private banker. As far as the housing loan tenure goes, the noted mortgage player offers it for a maximum of 30 years. You can choose the tenure based on your loan amount, income and repayment capacity. But you can change the tenure during the course of the loan and bring about a change in your repayment. But how should you go about it? We’re here to help you!
How Much Can I Save on Changing the Tenure?
There are tons of savings in store for you if you reduce the tenure with the increase in your income. An example can help you gauge things better.
For example, you have been servicing a 20-year home loan of INR 40 lakh at an interest rate of 8.85% per annum. If you keep the loan diary the way it is, you could pay a total interest of INR 45,44,975 at a monthly installment of INR 35,604. In the three years so far, you must have paid interest worth INR 10,31,118. So, there’s an outstanding balance of INR 37,49,370 to service over the remaining 17 years.
Assuming your income has risen 10% (average) every year, it must have gone up to around INR 93,170 from INR 70,000 (assumed) 3 years ago. Let’s see in the table below how you can save more by shortening the remaining tenure to 15 years.
|Loan Particulars||Amount & Period|
|Original loan amount||INR 40,00,000|
|EMI at 8.85%||INR 35,604|
|Interest to be paid over 20 years||INR 45,44,975|
|Interest paid over 3 years||INR 10,31,118|
|Remaining tenure||17 years|
|Restructured tenure||15 years|
|Outstanding balance left to pay||INR 37,49,370|
|New EMI for a 15-year tenure||INR 37,695|
|Increase in the EMI as a result of the restructured tenure||INR 2,091 (INR 37,695 - INR 35,604)|
|Interest to be paid over a 15-year tenure||INR 30,35,689|
|Interest paid till 3 years + interest to be paid over 15 years||INR 40,66,807 (INR 30,35,689 + INR 10,31,118)|
|Savings on a restructured tenure||INR 4,78,168 (INR 45,44,975 - INR 40,66,807)|
See, by increasing the EMI with a relatively modest sum of INR 2,091, you are saving such a heavy amount.
It just goes to show the importance of choosing tenure wisely. If you were not rational earlier, you still have the chance to get it right. But do soon rather than leave it too late. The reason being the interest obligations are on the higher side in the first half of the loan. Once you pass the first half, principal portions account for a higher share of the EMI.
Also, as you go further down in your HDFC Home Loan, you could feel of prepaying the loan using the bulk savings you might accumulate over time. You can, therefore, prepay in parts and reduce the outstanding loan and so do the interest obligations. The bulk payment could reduce the outstanding loan to an extent that you can shorten the tenure to easily accommodate the increased EMI. This will result in loans getting paid much before, giving you more time to add to your retirement funds. An example will help you understand better.
Continuing from where we left off in the table above, if you accumulate a bulk of say INR 4 lakh in 8 years from here and pay the sum, how will it reflect on your repayment?
|Loan Particulars||Amount & Period|
|Outstanding balance in another 8 years||INR 23,54,002|
|Part payment amount||INR 4,00,000|
|Outstanding amount left after part payment||INR 19,54,002|
|Remaining tenure||7 years|
|Restructured tenure||5 years|
|EMI to be paid on a new outstanding amount||INR 31,290|
|Interest to be paid over 7 years||INR 6,74,320|
|New EMI with a restructured tenure and a new outstanding amount||INR 40,420|
|Interest to be paid over 5 years||INR 4,71,184|
|Further savings on interest repayments with a restructured tenure||INR 2,03,136|
If all these tenure changes are taken into consideration, your original loan tenure of 20 is cut short to 16 years, yielding you a savings of INR 6,81,304. Yes, the latest rejig to your loan schedule will require you to pay a greater EMI of 40,420. But see the savings you have overall.
Assuming you took the loan when you were 30 years old. You will be 46 years old with the loan tenure getting curtailed to 16 years. You must be having another 14 years (60-46) to build on the funds before you retire. You can thus put all these savings to good use by investing in a myriad of products like mutual funds, fixed deposits, etc, according to your financial goals and risk appetite.
If you take inflation into account, you need to accumulate as much as you can to stay afloat. For that, you need to invest a fair amount in equities as they can help you generate a good surplus over time. In the current context where the market is not performing well with sharply decreasing NAVs of mutual funds, you may think it is not a good option. But choosing a systematic investment plan (SIP) and continuing to invest by this will help you maximize from the volatility. SIP comes with a unique concept of rupee cost averaging. Now, as the market is hitting lows, your SIP investments could buy quality stocks at low valuations and accumulate more units. Tomorrow when the market jumps, the accumulated units will help you draw more returns out of your investments. You can understand this theory better clicking on this link https://www.wishfin.com/mutual-fund/should-i-stop-my-mutual-fund-sips-when-stock-market-falls/
How Can You Approach HDFC for a Change in Your Housing Loan Tenure?
You can visit the branch of HDFC Limited or HDFC Bank with the latest loan statement indicating the principal and interest repayment made so far, the outstanding balance left to service, etc. This sort of refinancing is contingent on the validation from the branch manager about the increase in the income of the applicant. Once all formalities are done, you’ll get a fresh loan agreement letter showing the new tenure.