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.