How much can you save on a Rs. 1 crore home loan?

Home loans are some of the most affordable products offered by financial institutions. If you have recently availed of a home loan, then you might certainly be aware of the interest component that you will pay over the tenure of your loan. As the home loans involve huge amounts and tenure, the interest charged usually goes up to 50%-80% of the principal amount over the tenure of the loan. So, the question arises as to whether you can do savings on a home loan?

Balance Transfer

If you have already availed of a home loan with a higher interest rate, then you can consider a Balance Transfer to save yourself a considerable amount. Here, you can transfer your existing loan to a new lender if you satisfy their home loan eligibility criteria.

Consider the following scenario. Suppose you have availed of a home loan of Rs. 1 crore at 11% interest per annum. You get an option from two different banks that are offering you 8% and 9.5% interest rates per annum respectively after 5 years of repayment. Let’s calculate the difference:

Particulars	Existing loan	Balance Transfer (I)	Balance Transfer (II)
Loan Amount	Rs. 1 crore	Rs. 90,81,393	Rs. 90,81,393
Home loan interest Rates	11%	8%	9.5%
Tenure	20 years	15 years	15 years
EMI amount	Rs. 1,03,219	Rs. 86,787	Rs. 94,830
Savings per month in EMI	–	16,432	Rs. 8,389
Savings over 15 years	–	Rs. 29,57,760	Rs. 15,10,020

With just a reduction of 3% interest rate, you can save a whopping Rs. 29,57,760 and Rs. 15,10,020 over 15 years. This is equal to 30% and 15% of your loan amount. While this is particularly dependent upon how much rate reduction you get, the savings are considerable.

Points to be taken care of while availing a Balance Transfer

Following points should be considered while availing of a Balance Transfer facility

• Balance transfer usually involves pre-payment to an existing bank by the bank offering you the loan. Therefore, it is necessary to consider the prepayment charges/foreclosure charges levied by your existing lender.
• The new lender may charge login fees, processing fees, and other administrative charges which will be borne by you. Cumulate these charges with the prepayment/foreclosure charges and compare them with the savings in interest costs. You will get to know whether it’s worth it to opt for a balance transfer. Also remember, while the savings in interest costs will be accrued throughout loan tenure, the charges levied by the existing as well as the new lender will have to be paid upfront while processing the balance transfer.
• Consider the remaining tenure outstanding as well as the home loan interest rates offered by the new lender. If the remaining tenure is only a few years or the difference between the existing and new interest rate offered is significantly less, then it might not be beneficial to opt for the balance transfer.
• Benefits of a balance transfer can be availed either through reduction of EMI amount or reduction of the tenure of the loan or both. That depends upon the terms under which the new lender is offering the balance transfer.

Home Loan EMI Calculator

To calculate the benefits of the balance transfer, you can use the home loan EMI calculator. By just entering the loan amount, home loan interest rates, and the tenure of the loan, you can calculate the EMI amount. Do this for the existing as well as the new interest rate and calculate the difference.

Bottom Line

Savings on your home loan can be significant with the proper application of knowledge and grabbing the right opportunity. If you are burdened with huge EMIs, then you should consider the balance transfer to reduce your EMI burden.