Refinance Home Loan in India
Should you refinance home loan or not by prepayment of loan to the Bank is a question most of us want an answer for. To know if you should refinance home loan or not, you require following details which can be known by calling your Bank, there should be no cost for the information.
1) Total outstanding Loan Amount
2) Current EMI
3) No. of EMIs Remaining
4) Prepayment fees of bank (If any)
Usually there is no prepayment fees except the processing fees which will be around Rs 1000 and not more, however it’s still a good idea to get the facts right. Now, to understand the whole idea of home loan refinance we will cite an example.
Mr. Shah opted for a loan of Rs. 18 Lakhs in year 2003 when the Rate of interest was 6.75%, Now he is paying an interest rate at 12.75% and would like to refinance the loan as the other banks are offering an interest rate of 9.25% and this would save him a lot of money in the long run, so let us calculate how much will he be saving.
Mr. Shah’s approx facts are;
1) Total outstanding Loan Amount: 15,50,000
2) Current EMI: 18,000
3) No. of EMI’s Remaining: 280
4) Prepayment fees of bank: 1%
Based on the above details Mr. Shah’s total Interest due will be 35 Lakhs. Now, 35 lakhs as interest due for an outstanding loan amount of 15.5 Lakhs is a big amount and let us see if he can save anything by refinancing his home loan to another bank.
Other Bank is offering Mr. Shah a loan at;
Processing Fees: 0.5%
Interest Rate: 9.25%
Tenure: 15 years (180 Months)
Now based on these details Mr. Shah is likely to save 22 Lakh and his current situation will be.
New EMI: 16,000
Prepayment Fees: 15,500
Processing Fees: 7,750
Total Interest Due: 13.21 Lakhs
Similarly, If Mr. Shah opts for a loan of 20 year tenure, then his saving will be 16 Lakhs and EMI will be 14,000. So call your New Bank Loan executive and calculate your home loan refinance benefits, You may just save yourself a lot of money.
PS: Home Loan rates keep fluctuating and floating rate at new bank might increase of decrease which will add or less the total estimated amounts in the example. We expect the loan rates to fall in near future, so refinancing home loan should not be a gamble but clever calculation.