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Nowadays, the situation for home loan borrowers is very conducive as most of the banks are offering home loan at the lower rate. It is a good year for home loan borrowers as RBI has reduced the home loan lending rates and now the minimum lending rate has dipped to 9.40% offered by various banks to new customers. In such a competitive situation, besides the lower lending rate banks also offer different facilities to the customers. Even, the existing loan borrowers can also get benefited with this competitive situation. The customers who have already taken the home loan and paying the higher EMI against the loan can also reduce the size of their home loan by making small change. You can save lakhs on your home loan by following two simple steps.
Those who have taken the home loan for 20 years and more and opted for a fixed rate of interest for 5 years for seven years are the worst affected with higher rates. For instance, Sunil Singh is working with a software company and paying higher EMIs on the home loan. He has taken a loan of Rs. 30 lakhs from a banks and opted for fixed rate of interest for 5 years due to unpredictable market situations. But, after completion of the tenure his loan has been shifted to floating rates and now he is paying rate as high as 11.75% on the loan, which is way to high as compared to the present rates of 9.40%. So, for him switching a home loan could be a great option to reduce the size of the EMIs along with paying lesser amount as interest of the loan. A difference of 1% rate of interest in the loan amount could help in reducing the size of EMI more than Rs. 1000 every month. Therefore, it is a good option to switch your lender if you are paying higher rate of interest on your home loan. But, before going for loan switch over always compare different parameters of the loan transfer process. If you find that after paying a little amount for the whole process you are able o save more than Rs.2 lakhs, in that case you should consider a loan switch. Here are two simple steps, which can help you in saving lakhs in your home loan.
Negotiate with the banks to get the lowest rate: If you have good track record of paying the home loan. You have always paid your EMIs on time without a miss, it will help you to negotiate well with the new lender. You can show your track record to the new lender regarding the loan. Negotiate well with the new lender to reduce the rate of interest. Generally, banks offer you a lower rate of 0.50% or upto 1% less on your present rates. But, if you manage to get the present rates as what the new borrowers are getting, it will be in your favour. If you are paying the higher rate of 11.50% on your existing loan and you managed to negotiate well with the bank and get the rate of 9.50% on the loan this way you managed to get the best deal. It will reduce your EMI size and somehow you managed to somewhere Rs. 2500 on your home loan EMI. If you count your saving over the next 15 years this way you managed to save almost Rs. 4,50,00 on your home loan switch after paying the EMIs for 5 years in your present loan. It is good amount to save over the years. Even it gives you freedom to utilise the same amount for savings.
Opt for same tenure or lower tenure: If you are thinking to switch your home loan to a new lender, before switching you loan make some part-prepayment in your home loan to reduce the burden of overall loan. If you have some savings, then it is good option to make a part-prepayment in the loan. But, if you don't have any savings to divert there, then go for the remaining tenure or even the lower tenure for the as it will help you in saving more money.
For instance in Situation A, if you have taken a home loan of Rs. 20 lakhs at the rate of 11.50% and your monthly EMI is Rs. 21,329 p.m. you have paid Rs. 1,74,255 lakhs as principal amount in last 5 years and now you want to switch your loan to new lender. Now, your remaining amount is Rs. 18,25,745. if he will opt for the same tenure of remaining 15 years at the rate of interest of 9.50%, his monthly EMI will be Rs. 19,067. But, with previous rates his EMI would have been Rs. 21,329, so he managed to save Rs. 2,262 on monthly basis. This way you will save Rs. 4,07,160 in next 15 years by switching your loan.
But, you can increase your saving if you will opt for shorter tenure and increase the size of your monthly EMI.
Situation B, If you borrow the same amount at the interest rate of 9.50%, but for the tenure of 12 years. So, your monthly EMI will be Rs. 21,292, which is close to your previous EMI. But, this way you will manage to save some more money on your loan. With the tenure of 15 years your total interest outgo for the loan amount would have been Rs. 34,31,678. But, opting for the tenure of 12 years you will pay Rs. 30,66,480 as interest. This way you managed to save Rs. 3,65,198. It helped you to increase your saving on your home loan transfer. You will save more than Rs, 7 lakhs on your home loan transfer by availing shorter tenure on your home loan.
This is a smart move and an intelligent decision to switch your home loan, if you are paying higher rate of interest on your home loan. Switch your home loan to a lower rate of interest offered by any other private or public bank. You can even look for home loan transfer to private lenders as well. So, make your move based on calculations to save more on your home loan transfer.