Interest Rate Cut: Here's how you can repay your existing home loan

As the banks have reduced their interest rates on home loans, find out how you can repay your existing home loan by shifting to new bank offering cost-effective home loan interest rates.

Banks have cut their interest rates on home loans by up to 30 basis points since May this year. Representational Image. Image Source: IANS

Highlights:

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.

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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.

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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
Interest rate	8.60%
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