How Transferring a Home Loan at the Right Time Helped Ram to Buy a Car
Ram is your quintessential middle-class Indian. He has his dreams of living in his own home. He earns a decent income. Therefore, buying his home with a Home Loan is not a problem for him. Ram has an excellent repayment record as he has not missed a single instalment of his Home Loan. He has a dream of buying a car, but his finances do not allow him the luxury at this moment. Most of his income goes towards saving for his children’s education. Even though he earns enough to afford a car loan, he does not want to load himself with one more loan.
A casual conversation with his close confidante Anil proved to be the turning point in Ram’s life. Anil had recently availed the Home Loan Balance Transfer (HLBT) facility. He was explaining the benefits to Ram. Suddenly, it struck Ram that he could do the same as well.
What did Ram do?
That evening, Ram started searching for the best Home Loan Balance Transfer offers on the internet. Browsing through the website of loan service providers like https://www.mymoneymantra.com let Ram compare interest rates of different banks on a single screen. The results were surprising. Ram did not know that many other banks were offering interest rates much less than what his bank was charging him. He could see a variety of Home Loan Balance Transfer offers.
Ram had availed a Home Loan of 25 Lakhs @10.5% from a reputed bank. He found out that many banks were offering Home Loans at 8.5%. Now, a 2% saving on a Home Loan is a significant amount. He started to do the calculations.
The calculation part
|Particulars||Existing Home Loan @ 10.5%||HLBT @ 8.5%|
|Loan Availed||25 Lakhs||23,86,660|
|Rate of interest||10.5%||8.5%|
|Loan tenure||20 years||208 months|
|Loan serviced||32 EMIs||–|
The above table shows that Ram can save a minimum of 3,000 per month if he availed the HLBT offer.
How will the HLBT help him buy his car?
Ram had some savings in his bank account to pay for the margin for the car loan. Banks usually finance up to 80% of the cost of a new car. A new car was costing him around 3,75,000. He can manage 75,000 as the margin money. He needs to go for a car loan of 3,00,000. What would the EMI (Equated Monthly Instalment) be? Naturally, Ram started searching for car loan offers. He found one to his liking. This bank was offering him a car loan @ 10.5% for 84 months. The EMI worked out to around 5,058.
Thus, Ram had to pay 2,000 more to avail the car loan. An increment was around the corner. It made Ram’s job that much easier. He could buy his car without spending much from his pocket.
Things to consider
We have seen that the HLBT helped Ram to transfer his Home Loan at an attractive interest rate and save a considerable by way of reduction in his EMI. He could also afford a car loan by paying 2,000 more every month.
Ram would have to incur some expenses towards the HLBT.
- Processing fees (usually 1% plus GST @ 18%)
- Stamp duty and registration for creating a fresh equitable mortgage
We shall now see what Ram should do to avail the benefit of HLBT.
- Search for the best Home Loan Balance Transfer offers.
- Zero in on the right one that offers the best interest rate.
- Approach his existing bank and request for the Home Loan closure letter along with a list of documents in possession of his bank.
- Apply for the HLBT with the new bank and submit the documents called for by the bank.
- The documents include the KYC documents, income documents, and the Home Loan closure letter and list of documents.
- The bank checks out the credit score and approves the loan if Ram is found eligible for the same.
- The bank proceeds with the HLBT after the execution of the loan documents.
- Ram has to cancel the existing mortgage and create a new one in favor of the new bank.
He saves 3,000 per month in the bargain. It allows him to opt for a car loan and pay 2,000 more from his pocket. It is a win-win situation for Ram in every way.Transferring the Home Loan at the right time enables Ram to get the benefit of the interest rate and buy a car as well.
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