I have a housing loan with SBI sanctioned for Rs 35 lakh outstanding currently is about Rs 29 lakh. If I switch to EBLR by paying Rs 5,900, would they consider interest rates under Rs 30 lakh slab? Or above Rs 30 lakh i.e., do they consider sanction limit or outstanding amount?

Ans: They are not reducing your ROI because the regulations allow them to get away and not reduce the ROI. It’s definitely worth paying the 0.59 per cent charges (including GST) to shift to the lower rate EBLR regime which is now even lower than 8.30 per cent mentioned by you.

Ans: You should consider the following factors to cope with finance in the revised hiked interest rate regime:

• If you have money lying idle in your bank account or have some random investments earning low yields, put it to good use. Make lump sum amount and also consider loan prepayment, which will substantially reduce your overall interest payment and helps to save interest on the loan.

• If you could afford to increase the EMI to pay the loan to maintain the loan tenure, you should go for that.

As a thumb rule, don’t opt for a loan tenure beyond 15 years. Beyond that, interest liabilities shoot up without offering commensurate benefits in the form of lower EMI. The decision to go for lump sum payment or increasing EMI depend on your upcoming requirement, goal priority and commitment’s as well. Thus, ideal situation is due cashflow analysis.

Ans: Thank you for sharing details about your housing loan situation. It is indeed challenging when interest rates increase, impacting your financial planning. Let’s evaluate your current scenario and explore potential solutions to manage your housing loan more effectively.

Understanding Interest Rate Fluctuations
Interest rates on housing loans are influenced by various factors, including the Reserve Bank of India's (RBI) repo rate. When the repo rate increases, banks generally raise their lending rates. Over the past three years, your interest rate has increased from 7.25% to 9.75%, reflecting this trend.

Evaluating Your Current Rate
Although you mentioned you are considered a gold customer with a slightly reduced rate of 9.25%, this rate still appears high. Considering market trends and available rates from other financial institutions, it is crucial to assess if you can secure a better deal.

Steps to Consider for Managing Your Housing Loan
1. Refinancing Your Loan
Refinancing or transferring your loan to another bank offering lower interest rates could be beneficial. Here’s how you can proceed:

Research: Compare interest rates offered by various banks and financial institutions. Look for promotional offers and rates for balance transfer loans.

Calculate Savings: Evaluate the potential savings by considering the new interest rate, processing fees, and any other charges. Online calculators can help estimate these savings.

Application Process: If the savings are significant, initiate the loan transfer process. The new lender will pay off your existing loan, and you will continue with the new lender at the reduced rate.

2. Negotiating with Your Current Bank
Before deciding on a loan transfer, negotiate with your current bank. Here are steps to strengthen your negotiation:

Present Market Rates: Gather information on current market rates and offers from other banks. Present this data to your bank.

Highlight Your Profile: Emphasize your status as a gold customer, consistent repayment history, and any long-standing relationship with the bank.

Request Rate Reduction: Formally request a reduction in your interest rate. Banks may offer a reduced rate to retain valued customers.

3. Switching to a Different Loan Product
Some banks offer different loan products with varying interest rates and benefits. Explore if your bank has alternative loan schemes with better rates and terms. Switching to a more favorable product could reduce your financial burden.

Evaluating the Financial Impact
1. Cost-Benefit Analysis
Conduct a detailed cost-benefit analysis before making any changes. Consider the following:

Processing Fees: Check the processing fees for transferring the loan or switching products.
Prepayment Charges: Some loans have prepayment penalties. Ensure you are aware of these charges if applicable.
New EMI and Tenure: Calculate the new EMI and loan tenure. Ensure it fits your budget and long-term financial plans.
2. Impact on Monthly Budget
Assess the impact of the new EMI on your monthly budget. Ensure the revised EMI is affordable and does not strain your finances. Maintain a balance between meeting EMI obligations and saving for future goals.

Exploring Additional Strategies
1. Prepayment Options
If you have surplus funds, consider prepaying a part of your loan. Prepayment reduces the principal amount, thereby lowering the interest burden over the loan tenure. Most banks allow partial prepayments without any penalties.

2. Increasing EMI Payments
If feasible, increase your EMI payments. Higher EMIs reduce the loan tenure and overall interest outgo. Ensure the increased EMI is sustainable within your financial plan.

Consulting a Certified Financial Planner
A Certified Financial Planner can provide tailored advice on managing your housing loan. They can help you evaluate options, negotiate with banks, and make informed decisions. Their expertise ensures your financial strategy aligns with your long-term goals.

Conclusion
Your concern about the high-interest rate is valid. By exploring refinancing options, negotiating with your current bank, and evaluating different loan products, you can potentially reduce your interest burden. Additionally, prepayment and increasing EMI payments can further manage your loan effectively. Consulting a Certified Financial Planner for personalized advice is also recommended.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Switching from a 9.25% base rate to an 8.80% MCLR rate on your SBI home loan could reduce your interest costs, given a 0.45% rate reduction. This switch is generally worthwhile for a one-time ? 7,500 conversion fee if you have a longer loan tenure, as it leads to more interest savings over time. However, if your loan tenure is shorter, consider if the savings justify the fee. Evaluate potential future rate changes with SBI to ensure optimal benefits from the switch.
By switching from the current interest rate of 9.25% to the MCLR rate of 8.80%, here’s what you can expect:
Current EMI: ?42,819 New EMI: ?41,277
This reduction in EMI would result in total interest savings of approximately ?4.55 lakhs over the remaining 25-year term, after accounting for the ?7,500 conversion fee. Switching could be a good option if you want to reduce long-term interest payments. ?