Save lakhs on the mortgage! Here is what you need to do

Not only have real estate developers seen an increase in home sales due to lower interest rates last year, they’ve also found buyers looking for larger homes.

Banking entities from all walks of life have steadily reduced mortgage interest rates since the last quarter of 2020, passing the pricing benefits on to customers. This accelerated the decline in demand for home loans. The lower interest rate regime is here to stay in the midst of Covid-19. Lower interest rates bring a lot of relief to existing home loan customers. So, does it make sense for mortgage customers who pay higher interest on their loan to transfer their existing loans to banks offering lower interest rates? The answer is yes, because buyers of existing home loans can use the current lower interest rate scenario to ease their EMI burden.

“Existing borrowers who are eligible for new loans at lower interest rates due to an improvement in their credit rating, income profile, employment profile or other aspects of their credit profile should consider transferring their home loans to other lenders at lower interest rates. says Ratan Chaudhary – Head of Home Loans, Paisabazaar.com.

Not only have real estate developers seen an increase in home sales due to lower interest rates last year, they’ve also found buyers looking for larger homes. Several prime domestic commercial banks such as Kotak Mahindra Bank, State Bank of India, HDFC, ICICI Bank, Axis Bank, LIC Housing Finance, among others, have reduced their mortgage interest rates in 2020 and still have them. reduced in 2021, with rates now. from 6.65%.

Public sector banks, including the State Bank of India, Bank of Baroda and Canara Bank, offer home loans in the range of 6.70% to 6.95% per annum. Other private sector players like HDFC, ICICI Bank, Axis Bank in a range of 6.70% to 6.75%. The processing fees for the transfer of the home loan vary between Rs 10,000 and Rs 15,000.

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Lower interest rates would help existing customers reduce their EMI expenses. A calculation at the end of the envelope shows that a customer whose loan amount is Rs 30 lakh at 8% interest per year for a period of 20 years can save Rs 2460 per month on his EMI payment by switching to say, Kotak Mahindra Bank, which currently offers the lowest interest rate among all banks starting at 6.65 percent per annum. On a loan of Rs 30 lakh, the existing EMI would go from Rs 25,093 to Rs 22,633 at Kotak Mahindra Bank. This would translate into total savings of over Rs 5.90 lakh in 20 years.

“With interest rates falling sharply, now is the right time for mortgage borrowers paying a higher interest rate to achieve substantial savings on their interest expenses by opting for a lower loan. cost per balance transfer, especially for those who have a longer loan term to repay, ”says Ambuj Chandna, President-Consumer Assets, Kotak Mahindra Bank.

Read also: SBI lowers mortgage interest rate to 6.70%

If the loan amount is higher, the savings would be even greater. On a loan of Rs 50 lakh, a client transferring his loan balance to Kotak Mahindra Bank would end up saving Rs 4,100 per month on the EMI and would therefore benefit from total savings of over Rs 9.84 lakh over 20 years. On the loan of Rs 1 crore, a client would watch the EMI savings of Rs 8,201 per month and the total savings of over Rs 19.68 lakh, while a client would save Rs 16,402 per month on his EMI savings on a loan of Rs 2 crore and total savings of over Rs 39.36 lakh. For the transfer of the mortgage balance, Kotak Bank charges a processing fee of up to 0.50% to customers.

Considering the current economic conditions, it is in the interest of borrowers to opt for floating rates as one can take advantage of the low interest rate regime. According to experts, given the liquidity of the system, mortgage rates are unlikely to rise sharply in the near future. Of course, the same cannot be ruled out later if interest rates start to rise. Therefore, existing home loan clients can take this opportunity to transfer their loan balance.


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