Before you switch your home loan...
Adhil Shetty: Mar 09 2013, 03:05 IST
Home buyers had been facing a scenario of high interest rates which was in existence for a very long period of time. However, during the current year the scenario looks different with the Reserve Bank of India lowering key policy rates. It is widely expected that the central bank would continue to lower rates in its forthcoming announcement. Many banks, in response to the rate cuts, went ahead and announced lower interest rates on home loans, with State Bank of India taking the lead. Moreover prepayment charges on loans have also been abolished in line with RBI guidelines. With these changes happening, how can anyone not be tempted to switch to a bank with lower rate of interest?
Before you decide to take the plunge, halt, and evaluate. One should take into account key considerations before switching loans.
Interest rate variation
Check the existing rate of interest and the interest that you have been offered now. If the new lender’s rate is at least 1-1.5 per cent cheaper then it makes sense to switch.
For example, on an existing loan of Rs 75 lakh charged at 12 per cent for 20 years, your current EMI is Rs 82,582. If there is a reduction by 0.5 per cent, your EMI will change to Rs 79,982, a difference of Rs 2,600. However, if the interest rate comes down to 10.5 per cent, the savings would be substantial with your new EMI at Rs 74,879, which means savings of Rs 7,703.
Remaining tenure
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