Interest rates have finally cooled off a bit, with the RBI bringing down the CRR and repo rates recently. Some banks have already announced rate cuts on loans and few others are following suit. So, does it make sense to refinance your existing home loan? Will it help you save significant money by closing your high cost home loan and shifting to another bank that gives a lower interest rate?
I had taken a home loan of Rs 9 lakh from ICICI bank in November 2004, at a 7 per cent floating interest rate for 20 years. Since then, interest rates have gone up considerably. Now, my Equated Monthly Instalment (EMI) has also increased and I have a remaining tenure of 23 years. I am planning to shift my loan to State Bank of India (SBI). They have offered almost the same EMI and for a 15 year tenure. Should I shift?
– Tanmay Shastri
Yes, it makes money sense to take up SBI’s offer. Here’s why:
You save time and money
1. Your remaining tenure with ICICI is 23 years and SBI is offering you a 15-year tenure (with EMIs being the same). By switching lenders, you will reduce your tenure by a good eight years! In other words, you have 96 fewer EMIs to pay back.
2. With a reduced tenure, you would also save money (and a significant amount at that), despite the loan foreclosure fee of around 2.5 per cent that you will pay ICICI and the loan-processing fee of around 0.5 per cent that you will pay your new lender, SBI.
How much will you save? Rs 8.17 lakh!
Let’s do some number crunching to see how.
In 2004, the interest rate was 7 per cent and in 2008, its around 12 per cent, hence, the average interest rate is around 9 per cent. So, the approximate principal amount you would have paid in the last four years would be around Rs 70,000. This leaves us with Rs 8.30 lakh as the loan amount that SBI will lend you.
Let’s compare the total EMI you will pay under both cases, that is, SBI and ICICI, to see your net savings on the loan.
| Bank | Loan tenure (in years) | Loan amount (in Rs lakh) | Interest rate (in per cent)* | Total EMI (in Rs lakh) |
| SBI | 15 | 8.30 | 10 | 16.05 |
| ICICI | 23 | 8.30 | 12 | 24.47 |
*Approximate floating interest rate charged by the two lenders presently.
– Total outflow if you continue with ICICI (A) = Rs 24.47 lakh
– Total outflow if you switch to SBI (B) = Rs 16.30 lakh*
*This is the Total EMI to SBI + processing fee (to SBI) + loan foreclosure fee (to ICICI).
(Total EMI to SBI = Rs 16.05 lakh
Processing fee = 0.5 per cent x Rs 8.30 lakh = Rs 4,150
Loan foreclosure fee = Rs 8.30 lakh x 2.5 per cent = Rs 20,750
Total outflow = Rs 16.05 lakh + Rs 4,150 + Rs 20,750 = Rs 16.30 lakh)
– Net savings from the switch = (A) - (B), that is, Rs 24.47 lakh minus Rs 16.30 lakh = Rs 8.17 lakh
Why is SBI giving a lower cost loan?
It has managed to keep its borrowing costs low and hence, is able to provide attractive interest rates as compared to ICICI.
The recent CRR and repo rate cuts gave SBI further advantage and it slashed its loan rates.
As you had taken on a floating rate with ICICI and the SBI offer is significantly lower, it is unlikely that it will go as high as ICICI’s current interest rate.
Switch your way into a low cost loan
– When interest rates increase, either loan tenure or EMI (or both in some cases) go up. See if another lender offers you a considerably lower EMI or tenure, with other aspects being more or less constant. If yes, then you stand to gain with a switch.
– Find out if you can bargain for a waiver in processing fees with the new lender or in foreclosure fees with the earlier lender.
i have a home loan from ICICI. Currently 41 months are remaining at an EMI of Rs. 19,353. ICICI’s rate currently is 13% which I beleive will now be down to 12.5% because of the 50 basis points reduction on 1-1-09. Should I switch to SBI? ICICI will charge me 2.25% for fore-closure penalty & SBI will charge me 0.5% as processing fee.
Dear Sir
I have taken home loan from HSBC bank of Amt 3.5 lakh now i want to switch over to nationalised bank does the same insurance will carry on to another bank or need fresh insurance policy, what does the processing fee will and foreclose fee of my bank. do I swtich over it or not
Sandeep
i am taken loan rs. 8 lakh from axis bank in jan 2008 . my emi is 8844 and current interst rate is 10.75 and my tenture increased to 13 monts ( i.e 180 monts to 193 monts) can i switch to sbi ? pls give your valuable guidelines to me
thanking you
Hi,
I have an existing home loan with HDFC bank and the principal outstanding is Rs.13 lakh and the EMI I pay every month is about Rs.14300 and the remaining tenure is close to 20 years. I feel this is too high and hence considering switching to some other bank with a lesser EMI. please guide me.
Thanks
Arun
You can use this calculator to calculate the cost of switching your home loan.
http://www.bankbazaar.com/finance-tools/refinance-calculator.html
Dear Sir
I have taken home loan from Kotak Mahindra bank of Amt 12.30 lakh now i want to switch over to nationalised bank SBI. But my builder is not issuing me the NOC letter. He is asking for 25000 Rs for NOC letter.
What to do ?
Anil
Nikhil….
based on information you have given….the outstanding loan amount comes to approx 6,25,000. So, on switching - assuming you keep on paying the same EMI, your loan will get over in around 38 months. Effectively it will be a saving of around 30K in net terms.
I have taken home loan from ICICI last year for 15 lakhs, 20 yrs tenure, I am thinking to repay may be 60% loan through own sources., then can reduce tenure or emi, which will be better option
I wanted to shift my home loan from IDBI bank.
IDBI bank says that I need to pay them the interest on the outstanding amount from the date I deposit the transfer amount till the date the cheque gets cleared which they are considering 3 days.
Is this a usual practice with all banks? Is this not covered as part of the processing fees they are charging?
On top of that, they are also asking for an additional amount to provide a copy of all the documents they have with them.
is there no regulation on all these extra toppings they charge for?
can you clarify this please?
thanks
Even I am with the same situation and I argued with the IDBI bank a lot but they seem to be head strong in this matter. As I was helpless, I have posted the same query with different forums. I shall certainly share with the information as soon as I get it. In the interim, if you get to know about curbing on these additional toppings, then please let me know. Thanks in advance.
Hi ,
Thanks for stopping by. Do log on to bankbazaar.com and check out our Refinance calculator in the top nav to understand how you will benefit from a loan transfer and if it makes sense for you to consider the refinance option. Thanks.
Hi,
I have an existing home loan with HDFC bank and the principal outstanding is Rs.14.5 lakh and the EMI I pay every month is about Rs.15205 and the remaining tenure is close to 18 years. I feel this is too high and hence considering switching to some other bank with a lesser EMI. please guide me.
Thanks
Ayyappa
what is refinance?
what is money?
sir,
i am having home loan from lic @10.5% for 110 lacs. now the amount remain is 8.5 lacs. can i shift it to sbi loan scheme that offers 8% intrest ( freezing for one year0 or this scheme is only available to new customers.
thanks
actually the loan amount was 10 lacs , not 110 lacs. sorry for the mispellings
hi,
i hv a loan with hdfc @ 11.5% rate of interest, its EMI works out to be 11082 for a period of 47 month for a loan of 421000/-. with your EMI calculator EMI works out to be 9630/- why such a big difference.
i have home loan of balance pricipal 2896047 with EMI 42423 with interset 10.75% for 103 months remaining , any one can calucalte how much HDFC will charge for closing loan & i want this with SBI to takeover for balance pricipal 2896047.
How much extra i need to pay to takeover the tranactions from HDFC –> SBI
I want to take a home loan of Rs. 6 Lakh for 15 Years from SBI. What will be the rate of intrest & EMI
i have taken home loan from icicihfc ofamt 27 lac on 30th oct 2009@9.25% floting for 204 month now crurrent intrest @8.25% for two yer fixed i want to use curent intrest pl advise me
gdmishra
raipur
Sir,
I have an existing home loan with HDFC bank and the principal outstanding is Rs.11 lakh and the EMI I pay every month is about Rs.13575 and the remaining tenure is close to 18 years. I feel this is too high and hence considering switching to some other bank with a lesser EMI. please guide me.
Thanks
Ajay
I have taken home loan from IDBI in April 2006 for an amount of Rs. 14,64,744 and the tenure of 20 years @8.75% fixed for first 3 years and after 3 yrs the interest was increased to 10.75 and currently I am paying @9.5%.
Because of increased interest rate principle amount became too small out of my EMI 12,944 and because of that I increased my EMI to 17,944 from April 2009. My current outstanding balance is Rs. 10,08,000 and remaining EMIs are 75 @9.5% and of monthly EMI of Rs. 17,944 (12944+5000).
Can you please suggest the repayment of Rs. 5000 every month is ok or not and also let me know if I can go for take over with other banks @8.25% or 8.5%.
The banks which are offering low interest rates 8 or 8.5%, they are fixed only for first one or two years and after that they may increase the rate of interest. Considering this, is it suggestable to take over my loan?
One thing I want to clarify is, why banks offer attractive rates only to new customers and neglect the a/c holders who already paying their regular EMIs whithout fail and having a good history?
Please clarify my doubts. Thanks in advance
Uma