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Switching a Home Loan to Get a Better Rate? Evaluate These 5 Points First
After the two repo rate cuts of 0.25 basis points each in February and April 2019, you may be looking forward to more affordable home loan financing. In general, your home loan EMIs will become cheaper to the extent that your lender passes on the RBIs rate cuts to you. If your lender's offers aren't that attractive, you can consider opting for home loan balance transfer. This involves switching lenders in an attempt to make your home loan more economical.
Before you do so, evaluate these points to know if it's a good time for you to switch your home loan.
How much You can Save via Repo Rate Cuts
Consider that you have a home loan of Rs.30 lakh taken for a 20-year tenor at a 10% interest rate with a particular lender. Here, your monthly EMIs amount to Rs.28,951. At present the repo rates have been slashed by 0.5% via two 0.25% cuts. If your lender passes on the full cut to you, then your home loan interest rate will go down to 9.5%. At this rate, your EMIs reduce to Rs.27,964. As you can see there the difference is almost Rs.1,000 and you can land up saving huge amounts in the long run under a loan that gives you the benefits of RBI's rate cuts.
These figures are particular to the loan amount, tenor and home loan rate you secure. Use an EMI calculator online to compute how much you will save with the repo rate cuts. If the amount is substantial and your current home loan interest rate isn't being brought down, then you can consider switching your home loan.
Total Cost of Carrying Out a Loan Transfer
As you consider moving to another lender, calculate the cost involved in transferring your account. That is to say that the balance transfer and processing fees levied by your new lender should not outweigh the amount that the new lender allows you to save on EMIs. If you are in the initial part of your tenor, then a switch can make sense as you have plenty of interest remaining to be paid. However, if you are at the far end of your tenor then a switch could land up being the more expensive option.
Advantage of Moving to MCLR-based Home Loans
Since home loan tenors tend to run up to around 20 years, you may still have a home loan that is linked to your lenders BPLR rate. However, MCLR-based home loans are considered to be better and more transparent when it comes to passing down rate cuts. In an MCLR regime, home loan interest rates are lowered when your lender drops the internal MCLR rate. So, RBIs rate cut should translate to lower MCLR rates and thereby lower home loan rates. In order to profit from a modified MCLR rate all you need to do is wait for your MCLR's reset date to arrive.
Additionally, when you consider that the proposal to link home loans to external benchmarks was deferred earlier this year, switching to an MCLR-linked loan may be the best option for you.
Benefit of having a Loan with A Top-Up Facility
Switching lenders can be an attractive option especially if your new lender is offering low interest rates coupled with top-up loan facilities. Top-up loans can be used to meet your personal and business needs apart from your housing finance. They are versatile and come at economical interest rates when compared to personal loans. If your prospective lender offers you this facility on cost-effective terms, consider switching your loan account.
Currently, you can get some of the lowest home loan interest rates in the country by availing of a Home Loan from Bajaj Finserv. Not only can you obtain financing up to Rs.3.5 Crore here, but you can also get easy balance transfer facilities and top-up loans at nominal interest rates, without any extra documentation.
Where You are vis-a-vis The Home Loan Tenor
Home loan EMIs comprise interest and principal components. Normally, during the start of the tenor, the interest components dominate the EMIs and towards the end, you pay off more of the principal. So, if you have a long way to go with respect to the tenor then switching lenders can help you save large amounts. This makes all the more sense when you move to a lender like Bajaj Finserv who gives you convenient home loan refinance options like the facility to make prepayments and foreclosures at zero extra charges. That way, you can pay off parts of your principal early and thereby reduce your EMIs substantially.