Are You Still Paying High Interest on Your Home Loan?
Your Home Loan is one of your most extended investments. The repayment period stretches to a maximum of 30 years. You pay a substantial amount of interest on your Home Loan throughout the entire tenure of the loan. Yes, the Home Loan interest rates are the lowest of all loan products in the industry. You have banks and NBFCs (Non-Banking Financial Companies) providingbestHome Loans at low-interest rates starting from 8.40% per annum (as of now).
Where Do You Stand?
Check out your Home Loan sanction letter to determine where you stand in the market scenario. If you are paying interest in the range of 10% to 12% while there are banks offering interest rates between 8.40% and 9%, you are losing a substantial amount of money in the process. The following table will give you the correct picture.
Let us assume that you have availed a Home Loan of 40 Lakhs repayable over 30 years @ 10.5% per annum. Let us compare a range of options.
|Loan Amount||40 Lakhs||40 Lakhs||40 Lakhs||40 Lakhs||40 Lakhs|
|Tenure||30 years||30 years||30 years||30 years||30 years|
|EMI (Equated Monthly Instalment)||30,757||32,185||33,634||35,103||36,590|
|Total interest outlay over the entire tenure||70.72 Lakhs||75.87 Lakhs||81.08 Lakhs||86.37 Lakhs||91.72 Lakhs|
|Total outlay over the entire tenure||110.72 Lakhs||115.87 Lakhs||121.08 Lakhs||126.37 Lakhs||131.72 Lakhs|
What do the figures convey? At present, you are paying an EMI of 36,590 with the total outlay amounting to 131.72 Lakhs. If you were to transfer your Home Loan to a bank offering a rate of interest of 8.5%, your monthly EMI reduces to 30,757. The total outlay over the entire tenure will reduce to 110.72 Lakhs.
(These are indicative figures. Your residual tenure could be less than 30 years)
Thus, you see that you gain about 21 Lakhs over a period of 30 years. Is this not a substantial sum? Therefore, we ask you the question, “Should you continue to pay high interest on your Home Loan when you have other beneficial options available to you?”
Applying for a Home Loan Balance Transfer (HLBT) is the best solution under the circumstances. What is anHLBT and how do you apply for Home Loan Balance Transfer?
An HLBT is a process by which you transfer your existing Home Loan from one bank to another to enjoy various benefits such as interest rate concessions, top-up facilities, extended tenure, and so on. We have seen in the example above that you stand to gain substantially if your interest rates drop by even half a percentage point.
The Advantages of an HLBT
- You get the benefit of a reduced interest rate
- You lower your EMI burden
- In case you wish to continue with the same EMI, you reduce the tenure of the loan.
- You gain substantially over the entire tenure of the loan.
- Specific banks give you top up loans for repairs and renovations, and other purposes.
How Do You Apply for an HLBT?
You can visit mymoneymantra.com to compare the rates of interest offered by various banks and NBFCson their Home Loans. Choose the bank that suits you the best. Apply for the HLBT online. The banks have a procedure to follow. On completion of the formalities, you can start enjoying the benefits of an HLBT.
The standard eligibility criteria for applying for an HLBT are as follows:
- Satisfy the KYC norms
- Have a regular source of income
- Maintain an impeccable repayment record in your existing home loan instalments
- Have a good credit score as applicable to home loans and other secured loans
Additional Expenses You Could Incur
Processing Fee on the Fresh Home Loan:
Banks treat an HLBT as a newHome Loan in their books. The processing fee can be in the range of 1% to 2%.
Prepayment Penalty for the Foreclosure of Your Existing Home Loan:
In case of floating rate interest loans, there is no penalty. However, if you have a fixed rate of interest, you have to pay the stipulated penalty. It can range between 2% to 5% of the outstanding amount.
Equitable Mortgage Expenses:
You have to bear the costs for the cancellation of the existing equitable mortgage as well as the creation of the new mortgage. You incur registration charges as well. (These amounts depend on the location/state in which you reside). In spite of incurring these additional one-time charges, you gain a lot even if the benefit in the interest rate is by half a percentage point.
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