In last two-three months, there are many financial institutions, which have cut their minimum lending rates by 15-25 basis points on the basis of recent change done by RBI. The latest change of the RBI has effected the lending rates in the home loan sector in favour of customers. The minimum home loan rate is 9.40% offered by various banks to lure more customers after implementing the latest changes. ICICI Bank, HDFC Bank, SBI Bank and many other banks have changed their lending rates to the minimum in the market. Even some non-banking financial companies are also offering home loan at the minimum rate. All these changes are good for new customers and even for the existing customers as well. Even these new lending rates encourage borrowers to think if is it the right time to reassess the home loan. Is it a good time to switch to a lower rate home loan and switch the lender?
Try to know your lender's offer first?
As a cut into the base rate will help in saving some more money. These banks and non-financial banking institutions will offer a loan at lower rates. For instance, a new customer will get a loan at the rate of 9.40% as per the latest lending rates. But, it might be there are customers who must be paying more interest on their existing home loan. How will they get benefited with the new lending rates? Is the bank going to reduce the lending rates to the minimum as per the latest changes? There may be instance that if the bank cut the lending rate still they are paying the higher rate of interest. So, it is good option to switch the home loan.
What will you save?
Let's say if you have existing loan of Rs. 30 lakhs for the tenure of 20 years. If you have already paid the loan for five years at the rate of 10.45% rate of interest. Now, you want to switch the home loan to a lower rate of interest of 9.65% from new bank. So, what are you going to save in the remaining years? Here are the calcuations for the same.
Processing fee for the loan transfer is 0.50% of the loan amount.
Existing rate of interest: 10.45%
Tenure: 20 years
Amount: Rs. 30 lakhs
Present Monthly EMI: 29,851
Total amount (Principal+Interest): Rs. 71,64,169
Remaining amount of loan after 5 years Rs. 27,08,014
With same calculations for the remaining tenure of 15 years you will pay Rs. 53,73,085
After switching your home loan for remaining amount of Rs. 27,08,014
New rate of interest: 9.65%
Tenure: 15 years
Amount: Rs. Rs. 27,08,014
New Monthly EMI: 28,523
Total amount (Principal+Interest): Rs. 51,34,207
The above calculation clearly indicates that if you switch your home loan on the new lending rate you are going to save more than Rs. 2 lakhs on your home loan. This is a big amount to save over the period of time. Even a small difference of 0.50% in the interest rate can help you in saving a good amount over the period of time.
Calculate all the factors
Before switching your home loan you should always calculate all the factors. You should calculate all the offers and the savings. If the new lender is going to give you 0.50% lower rate of interest on your existing loan it is good idea to switch the loan if you are not paying much on the loan transfer fee and other things.
Compare different offers
While choosing the new lender always compare different offers. Don't just grab the first offer made by any bank.. Try to get the new loan quotes from at least two or three different banks. It will help you in getting the best deal in home loan transfer. Always compare the rates and other terms and conditions of the new lender before switching your home loan.
Home loan transfer cost
This is another thing which you should consider before transferring your loan. Always calculate the loan transfer cost. What will be the processing fee and loan transfer fee and charges? How much you are going to pay. While calculating your benefits you should always deduct the fee and charges you are going to pay in home loan transfer. After deducting this loan transfer charges and fee from the amount you will save because of new lending rates you will be able to find out your savings. So, it is important to calculate all the things in advance.
Find out about documentation process
You should always remember that switching a loan is similar to getting a new a loan. In this loan transfer process you are supposed to submit some basic documents which you have submitted while borrowing you home loan. You will submit all KYC documents along with other property paper and new loan transfer form. Try to find out about the documentation process, is it really complicated or is it simple? Is the bank asking for long list of documents or it is just asking for few papers as compared to your home loan. So inquire about the documents and other papers in advance to ease the process of the loan transfer.