On March 21st , most newspapers reported the SBI’s new provision allowing existing home loan customers (approximately 17 lakh customers) to switch to it’s new home loan rates which are linked to base rate thus enabling significant savings.
Earlier, upto June 2010, the floating home loan rates were linked to SBAR (State Bank Advance Rate) and currently it is linked to the bank’s base rate. As a result of this the interest rates has come down significantly. While the current home loan interest vary between 10.75% to 11.25 % based on the loan amount (SBI home loan ), the earlier customer’s home loan rate may be as high as 13.5% – 14.0%.
Inorder to help the customers whose is suffering higher home loan rates the bank itself has brought a new scheme where the customers can get the home loan rates pegged to the banks base rate. This would enable the older home loan users whose rates were linked to SBAR to avail the lower current available home loan rates. However the catch is that the customers will have to pay a fee of 1% of outstanding principal amount. But when compared to the savings that one can make by shifting to the current home loan rates, there is no need of worry of the processing fee which is 1%.
We would like to present you the impact on monthly EMI and the benefits,
Lets assume the current outstanding amount of the home loan is Rs 50,00,000. The processing fee to be paid for shifting the older home loan to the new benchmarks will be Rs 50,000 (which is 1% of outstanding).
The table below shows the net benefit to customer savings in new EMI (which will be paid by the customer over the remaining period of the home loan) and after reducing the 1% fee.
|Difference in interest between today’s home loan rate (x)and customer’s older home loan rate (y): Y-X||Saving on monthly EMI|
If EMI is saved over 10 yrs, the value of that saving today will be:
If EMI is saved over 15 yrs, the value of that saving today will be:
|0.5%||Rs 1712 /-||Rs 82,969 /-||Rs 1,14,336 /-|
|1.0%||Rs 3445 /-||Rs 2,17,551 /-||Rs 2,80,725 /-|
|1.5%||Rs 5297/-||Rs 3,53,679 /-||Rs 4,48,995 /-|
|2.0%||Rs 6969 /-||Rs 4,91,285 /-||Rs 6,19,092 /-|
|2.5%||Rs 8759/-||Rs 6,30,304 /-||Rs 7,90,936 /-|
|3.0%||Rs 10567/-||Rs 7,70,671 /-||Rs 9,64,446 /-|
If your older home loan interest rate is higher than new rate by 1%, the monthly EMI difference for you will be Rs 3445/- (please refer row 2) . If you have to pay the EMI for next 10 years, the value of savings on discounting to today (while you would accrue the same over next 10 years) after payment of processing fee, you tend to save ~ Rs 2,17,551. If the balance years left is 15 yrs, then the value of saving today is Rs 2,80,725 /-. if you want to calculate your savings if your outstanding loan is lesser or higher, you can proportionately factor it or you can send a query in the comment box. For e.g if your outstanding loan amount is 25 lacs that is to be paid over next 10 years, then your savings will be Rs 1.08 lacs (half of Rs 2,17,551).
Hence to all customers of SBI who may be paying a higher rate of interest, the advice from Goodhomeadvisor.com is rush to your bank and pay the processing fee for transfering your home loan to the new rates.