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Switching Home Loans - A Matter of Profit and Loss | Home Loans in Hinjewadi | 1 and 2 BHK in Wakad, Pimpri, Chinchwad, Punawale

1bhk in hinjewadi, 2bhk in hinjewadi

When is the Right Time to Switch?

The best time to switch your home loan is during the primary years of repayment as it will give you the maximum benefit. If you are nearing the end of your repayment term, switching is not advisable for the EMI at that point primarily consists of the principal amount with barely any interest payment left. So ideally, consider a switch only if your loan tenure still has 8 to 10 years left. Apart from the tenure term, you also need to evaluate the rate cut. Switch only if the reduction in rates is at least 0.75 to 1.00 per cent. The rate cut and tenure period should preferably be inversely proportionate to each other. This implies that if you have a longer tenure term left, say 10-15 years, even the slightest rate cut of 25-50 bps can help you save a lot. You can use online EMI calculators for getting accurate figures.

Does Switching Cost?

Yes, it does. You are required to pay a one-time fee if you wish to switch home loans. This fee ranges between 1 to 1.5 per cent of the remaining loan amount. However, there are some banks who levy a fixed amount on switching. Besides, you are also entitled to pay a ‘foreclosure fee’ to the existing bank. In case you are interested in switching the loan rate with your existing bank, you will be charged a ‘conversion fee’ of 1 to 2 per cent of amount outstanding. This also has another benefit- you are saved from the nuisance of documentation and paperwork. Additionally, there are several other costs such as stamp duty, legal charges and valuation fee. So, do a little math and see if these overhead charges total up to more than what you can save on the interest rate. If yes, switching is ill-advised.

Longer Tenure, More Savings

Prudence dictates that if you want to save the maximum, switch only if your repayment period is at least 8 to 10 years. The other criterion that you need to keep in mind is that switching will only reap benefits if the difference between your present and reduced rate of interest is at least 1 per cent. For example, if your loan tenure is equal to or less than 5 years, you should look for a 1 per cent rate cut to profit. Also, settling for a cut of less than 0.75 per cent will not prove beneficial even if the repayment period is around 10 years. So think before you switch!

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