Use this calculator to check the benefits (if any) associated with switching your home loan. Either from one bank to another or from base rate to MCLR (Marginal Cost of Funds based Lending Rate). This is an updated version of the Home Loan Transfer Calculator (Mortgage Refinance) with an ability to check benefits for (a) same EMI, lower tenure and (b) reduced EMI, same tenure.
With the slashing of the one-year MCLR rate, home loans have got attractive by at least 1%. So it is now time to check if it is beneficial to transfer the loan to a rate. This is not exactly intuitive. The cost and fees have to be accounted for, along with the decrease in tax saving.
There are two ways to analyse a home loan transfer.
- If the net savings per month is used to prepay the home loan, how much quicker will the amortisation be completed? Support this is about 2 years. Then the total cost involved in transferring the home loan to a lower rate has resulted in a pre-closure. Is it worth that, is a question that we need to answer?
- What is the net savings were invested elsewhere? Letting the new home loan run its course? The costs can be recouped in a few years, and at the home loan tenure, one will have a decent corpus from the investment.
Consider a 15L outstanding balance on a loan with 20 years remaining and 9.7% (fixed rate). The EMI is 14,178.
If the new rate is 8.25% and total fees for transferring is Rs. 14,000 then
there are two options:
Reduce EMI and keep the term the same
The new EMI is 12,781. We save money each month on the interest component and the principal component. However, some extra tax has to be paid due to lower interest (principal component tax saving is ignored as it is likely to be covered by other 80C sources). Therefore, the sheet calculates the “net savings” for each year and how many years it takes for savings to turn positive (recoup costs). In this case, there is an immediate benefit.
If the extra savings are used to pre-pay the loan systematically, it can be closed 42 months earlier.
There are dual benefits in this case: savings + pre-closure.
Keep EMI the same and reduce tenure
Now the EMI is the same (14,178), but tenure has reduced by 50 months. The interest component is lower (so tax has increased) but principal component has to increase to keep EMI the same. Therefore the net savings is likely to be negative (none) throughout the tenure. That is not a problem if you wish to keep the house for much longer.
In this case, the only benefit is pre-closure.
Please play around with this sheet and share your insights. It will benefit everyone.
Thanks to Mr. Prasanna and Abhishek Singh for useful suggestions.
If you are changing both the tenure, and the emi, then you can use the calculator in this post: How I transferred my home loan from LICHFL to SBI and saved 12 Lakhs!
A detailed Excel Home Loan Amortization Schedule Template is also available which allows periodic and aperiodic pre-payments.
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