Interest Rate Cut: Here's how you can repay your existing home loan
1. Banks have cut their interest rates on home loans by up to 30 basis points since May this year
2. SBI has lowered its interest rates for home loans up to Rs 30 lakh by 25 basis points to 8.35% for women and 8.55 to 8.65% for loans up to Rs 70 lakh
In an attempt to achieve prime minister Narendra Modi's vision of 'Housing for All by 2020', banks and financial institutions have slashed their interest rates on home loans by up to 30 basis points in May this year.
State Bank of India (SBI) had announced rate cut on home loans by 25 basis points (bps) to 8.35% per annum for salaried women customers for loans up to Rs 30 lakh on May 8 while the interest rate for males ranges from 8.55 to 8.65% for loans up to Rs 70 lakh.
With the slashing of interest rate cuts by banks, there is an opportunity for existing home loan buyer to shift his existing home loan to another bank offering home loans at cost-effective interest rates.
We managed to speak to Prasad Shetty chief executive officer and co-founder of Mumbai-based financial planning and advisory firm S9 Financial Planners to get insights on how banks slashing of interest rate will help the individual borrower to repay his existing home loan.
According to Shetty, If an individual is having a net salary income of Rs 45,000 and has taken a loan of Rs 27 lakh at floating interest rate of 8.95% for tenure of 15 years in 2016, the total amount paid by him in a year is Rs 3,30,000 on an approximate basis.
Out of this total amount of Rs 3,30,000, Rs 90,000 is the principal amount and the remaining Rs 2,40,000 (on approximate basis) is the interest paid by the borrower in the first year which includes equated monthly installment (EMI) of Rs 27,400 per month.
He paid the total stamp duty (at 5%) and registration (1%) charges of Rs 1,80,000 on the loan.
The individual has paid the processing fee of approximately between Rs 2,500 to Rs 10,000 on his existing home loan. The individual has made down payment of Rs 3,00,000 on his existing loan.
Existing Bank Home Loan Calculation
|Home loan||Rs 27,00,000|
|Net salary income||Rs 45,000|
|Interest rate (floating)||8.95%|
|Loan tenure||15 years|
|Stamp duty + registration charges||Rs 1,80,000|
|Processing fee||Between Rs 2,500 to 10,000 (approximate)|
|Interest paid by borrower in 1st year||Rs 2,40,000 (approximate)|
|EMI||Rs 27,400 per month (approximate)|
|Principal amount paid by borrower||Rs 90,000|
|Total amount paid by borrower in 1st year||Rs 3,30,000 (Principal amount + interest)|
|Down payment||Rs 3,00,000|
If you have any queries related to housing finance loans, you can check website of S9 Financial Planners here-
Now, since the banks have lowered their home loan interest rates if the individual decides to opt to new bank offering home loan at floating interest rate of 8.6% to repay the remaining loan amount of approximately Rs 26,10,000.
He has to pay total interest on new loan of Rs 19,75,000 for home loan tenure of 15 years and Rs 2,90,000 as annual EMI for the first year.
The processing fee for the new loan can range from Rs 2,500 to Rs 10,000, however, on request this processing fee can be waived off but it depends from bank to bank, cited Shetty.
While shifting loan to new bank, the individual has to pay only stamp duty (at 0.2%) of Rs 5,220 and franking charges of Rs 600 so that sums it up to total Rs 5,820.
Besides, he doesn't have to pay any down payment towards the new bank loan.
New Bank Home Loan Calculation
|Remaining home loan amount||Rs 26,10,000|
|Loan tenure||15 years|
|Total interest on new loan||Rs 19,75,000|
|Annual EMI on 1st year||Rs 2,90,000 (Rs 24,167 on per month)|
|Stamp duty (at 0.2%)||Rs 5,220|
|Franking charges||Rs 600|
|Total charges (Stamp duty + Franking)||Rs 5,820|
|Processing fee||Range from Rs 2,500 to Rs 10,000 but can also be waived off depending upon banks|
|Down payment||No down payment|