Banking entities across the spectrum have steadily slashed home loan interest rates since the last quarter of 2020, passing on rate benefits to customers. This has revved up the sagging demand for housing loans. The lower interest rate regime is here to stay amid Covid-19. The lower interest rates bring in a lot of relief to existing home loan customers. So, does it make sense for home loan customers who are paying a higher interest on their loan to switch their existing loans to banks that are offering lower interest rates? The answer is yes, as existing home loan buyers can make use of the current lower interest rate scenario to lessen their EMI burden.
"Existing home loan borrowers eligible to avail new loans at lower interest rates due to the improvements in their credit score, income profile, employment profile or other aspects of their credit profiles should consider transferring their home loans to other lenders at lower interest rates," says Ratan Chaudhary - Head of Home Loans, Paisabazaar.com.
Not just did property developers witness increase in housing sales on the back of lower interest rates last year, but they also found buyers looking for bigger homes. Several domestic top-notch commercial banks such as Kotak Mahindra Bank, State Bank of India, HDFC, ICICI Bank, Axis Bank, LIC Housing Finance among others slashed their home loan interest rates in 2020, and reduced them further in 2021, with rates now starting as low as 6.65%.
Public sector banks including State Bank of India, Bank of Baroda and Canara Bank offer housing loans in the range of 6.70%-6.95% per annum. Other private sector players like HDFC, ICICI Bank, Axis Bank in the range of 6.70%-6.75%. The processing fees for transferring the home loan varies between Rs 10,000 to Rs 15,000.
Lower-interest rates would help existing customers in trimming their EMI outgo. A back-of-the-envelope calculation shows that a customer whose loan amount is Rs 30 lakh at 8 per cent interest per annum for a tenure of 20 years can save Rs 2,460 per month on his EMI payment by switching to say, Kotak Mahindra Bank, which currently offers the lowest interest rate among all the banks starting at 6.65 per cent per annum. On a Rs 30 lakh loan, the existing EMI would reduce from Rs 25,093, to Rs 22,633 at Kotak Mahindra Bank. It would result into total savings of over Rs 5.90 lakh in 20 years.
"With a steep drop in interest rates, this is a good time for home loan borrowers who are paying a higher interest rate to earn substantial savings on their interest outgo by opting for a lower-priced loan via balance transfer, especially for those who have a longer loan tenure left to be repaid," says Ambuj Chandna, President-Consumer Assets, Kotak Mahindra Bank.
If the loan amount is higher, the savings would be even more. On a Rs 50 lakh loan, a customer shifting her/his balance loan to Kotak Mahindra Bank would end up saving Rs 4,100 per month on the EMI outgo and would hence benefit from total savings of over Rs 9.84 lakh over 20 years. On Rs 1 crore loan, a customer would look at EMI savings of Rs 8,201 per month and total savings of over Rs 19.68 lakh, while a customer would save Rs 16,402 per month on her/his EMI savings on a Rs 2 crore loan and total savings of over Rs 39.36 lakh. For home loan balance transfer, Kotak Bank charges processing fees of up to 0.50% to customers.
Given the current economic condition it is in interest of borrowers to opt for floating rates as one can take advantage of the low interest regime. According to experts, given the liquidity in the system, home loan rates are unlikely to see a sharp rise in the near future. Of course, one cannot rule out the same later on if interest rates start increasing. Hence, existing home loan customers can take this opportunity to transfer their balance loan.
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