Why you should not shy away from reviewing your home loan?

Gaurav Roy

A married friend has the ideal Indian life. A good (albeit stressful) job at a top company, two cute kids and no in-laws to put up with. He and his wife (who still works) have two loans on two houses. One in Mumbai, which they live in. The other in Goa, which they want to retire to, in the future. Right now, it serves as a vacation home.

Both of them started saving early but still had to scrounge around for the initial down-payment of Rs 5 lakhs, for the Mumbai house. They took this loan at 7.5% from ICICI Bank more than 10 years ago. The Goa house loan was taken at 6.5% at a great discount that his wife managed to get, since she worked for a public sector bank. So will taking a re-look at their loan outstanding, benefit such a couple, since they anyway have them so cheaply?

Maybe yes or no. They won't know unless they try out a refinance/review a home loan tool on some site. They are probably really well situated with their loans commitments, but that's not the case with so many others, who didn't buy a house until much later, when interest rates had crept up considerably. But what if my friend was taken in by a 'teaser' rate that crept up eventually too?

Then he's in the same boat as the average person out there, who has taken a loan today. Whatever your situation, it's good to keep on top of your interest rate, so that you know when to switch and save money. You can do this by:

- Reducing EMI, if you transfer your balance to a lower interest rate plan
- Reducing tenure of the loan by paying more now but saving in the long term

In the above situation, let's see if he can get a better deal again, today, as well, assuming his interest rate has gone up to 11% from the more cushy 7.5% he was paying earlier. He's looking to transfer Rs 15 lakhs, for which he earlier paid an EMI of Rs 20,000. He checks out a tool that tells him the following:

- He can get a loan at a cheaper rate of 10.5% for 5 years.
- He has to pay Rs 32,563, which is more than the Rs 20,000 he paid earlier.
- The difference of Rs 12,563 might pinch him a little.
- But here's the winner: He will save Rs 2.71 lakhs over those 5 years.

So paying more now will actually benefit him in the long term. So why not give it a shot yourself? Don't hesitate to review your home loan now. Get started with those free online tools. Save money and invest it elsewhere. Or splurge on that much deserved holiday!