HT Estates - - HTESTATES - Harsh Roongta

I have taken a home loan of ₹ 51 lakh for 20 years at 10.2% fixed rate for two years. I got an of­fer to switch the loan to an­other bank at 9.85% in­ter­est for 20 years. Can I switch the home loan now? Please ad­vise.

— Atul Chaud­hury It is ad­vis­able to trans­fer your ex­ist­ing loan to any other bank in case they of­fer you a bet­ter deal in terms of in­ter­est rate.

There are two ma­jor charges that need to be con­sid­ered while trans­fer­ring the loan. The first is pre­pay­ment charges, which will con­tinue to be charged on fixed rate loans and are at present payable on your loan dur­ing the fixed rate stage. The sec­ond is pro­cess­ing fees that you will have to pay to the bank where you in­tend trans­fer­ring your loan. This will be in the range of 0% to 0.56% (in­clu­sive of ser­vice tax) of the loan amount.

Some of the lenders pro­vide waiver of­fers on pro­cess­ing fee pe­ri­od­i­cally for cer­tain pe­riod or cap it at a fixed sum, ir­re­spec­tive of loan value. Th­ese two costs viz-a-viz sav­ing in the in­ter­est over the bal­ance loan ten­ure will help you de­cide to switch your loan or not.

Switch­ing a loan also in­volves the modal­i­ties of hand­ing over the prop­erty doc­u­ments from your ex­ist­ing bank to the new bank.

The ex­ist­ing lender typ­i­cally pro­vides a let­ter ad­dressed to the new lender pro­vid­ing a list of orig­i­nal doc­u­ments avail­able with them as se­cu­rity and agrees to re­lease the doc­u­ments within a cer­tain num­ber of days af­ter full pay­ment is re­ceived.

The let­ter also con­tains an amount on pay­ment of which the loan will be treated as fully paid. You will need a track record of pay­ment of your EMIs to be able to get an of­fer from an­other bank.

Try and check with the ex­ist­ing lender if it can re­duce the rate for you on pay­ment of a fee. I want to buy a prop­erty worth ₹ 35 lakh by tak­ing a joint home loan with my spouse. Our com­bined net in­come is ₹ 65,000 pm. We are pay­ing an EMI of ₹ 3,000 to­wards a car loan. This has to be re­paid within four years. We are 43 and 39 years, re­spec­tively.

— Ashim Ma­ha­jan Dif­fer­ent banks pre­sume dif­fer­ent por­tion of your in­come as avail­able for pay­ment of EMIs of loans. It varies from bank to bank and there is no stan­dard norm/for­mula. But nor­mally the bank will as­sume that around 40% to 45% of your net salary is avail­able for pay­ment of EMI to serve all the loans.

So in your case (₹65,000 be­ing your net pooled in­come per month) the EMI avail­able to ser­vice the home loan will be ap­prox. ₹ 29,250 (45% of your com­bined net salary) less the run­ning car loan EMI, and the home loan el­i­gi­bil­ity will be cal­cu­lated ac­cord­ingly.

Since you are pay­ing an EMI of ₹ 3,000 on your car loan, the el­i­gi­bil­ity for home loan will be cal­cu­lated on the bal­ance ₹ 26,250 (ie ₹ 29,250 less ₹ 3,000), which will be avail­able to pay the EMI of a home loan.

For a prop­erty cost­ing ₹ 35 lakh you will need a down pay­ment of ₹ 7 lakh (as bank will fi­nance only up to 80% of the agree­ment vale). In ad­di­tion of the ba­sic mar­gin money you also have to fully bear the cost of stamp duty and reg­is­tra­tion charges, as the banks no longer fund th­ese charges.

The EMI for a 20-year loan (as­sum­ing your re­tire­ment age is 65 years) of ₹ 28 lakh at the rate of 9.90% pa is ₹ 26,835. This is likely to be the amount of loan you will be el­i­gi­ble to get. Your down pay­ment will be ₹ 7 lakh plus stamp duty charges.

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