For borrowers who took home loans
after October, all new home loans
would be linked to an external benchmark or the repo rate. With every repo rate cut, they would have benefited because lenders adjust rates after every three months.
However, this is a good opportunity for old borrowers on marginal cost of funds-based lending rate or MCLR or even older regimes to shift their loans to these lower rates, and if they are not getting a good deal, shift lenders as well.
“Shifting regimes within the same bank is often a problem because there is resistance. Shifting lenders may be a better idea. But one needs to factor in additional costs,” adds Sadagopan.
How will the new numbers look?
Say, you had taken a 20-year Rs 50-lakh loan at the rate of 9 per cent two years back, the equated monthly instalment (EMI) would be Rs 44,986. After two years, the outstanding would be Rs 48.04 lakh. Now, if you shift the outstanding at the rate 7.5 per cent for 20 years, your EMI would be Rs 38,700 — a difference of Rs 6,285 per month or Rs 75,432 in one year.
Even if you are not facing any fund crunch, shifting still makes sense because you can reduce the tenure. For example, in the same case, if the new loan is taken at the 7.5 per cent for 15 years, the new EMI would be Rs 44,533 — still less than Rs 48,986 you were paying, and tenure would be reduced by three years or 36 months. It means a neat saving of Rs 17.63 lakh. No wonder, even if there is a fee of Rs 20,000-50,000 to shift, it still makes sense to do so.
Of course, financial planners have to factor in many probables before recommending a shift. Most borrowers tend to repay the home loan before the entire tenure. All these factors have to be considered before shifting. If you intend to prepay a 15-year loan in the next five years, it may not make too much sense to shift. “However, given the tax benefits it provides under both on
principal and interest payment, retire this loan as the last measure,” says another financial planner.