How to calculate exact benefits in ‘Home Loan Shifting @ Lower Interest Rate’

POSTED BY Ratnesh Jain ON March 12, 2014 10:23 pm COMMENTS (3)

I have opted for a home loan 3 years back @10.00% p.a. That time my EMI was Rs. 19,000 which was raised a couple of times due to increase in interest rates (@12.50% p.a.) in last 3 years. Now it is reduced @ 11% p.a. 

I wish to shift this loan to a PSU bank offering around 10.00% p.a. and hoping for further reduction in interest rates. I was wondering how exactly to calculate the benefit of shifting. Considering all factors put together.  Existing Loan of Rs. 18,00,000 (principal pending as on date Rs. 16,00,000) . EMI am paying is Rs. 20,200 for a term of 17 years (raised from 15 years to 17 years).

Proposed Tenure with the new bank is 12-15 years considering EMI remains around 20k. 

Help me to assess whether shifting make sense or not?

3 replies on this article “How to calculate exact benefits in ‘Home Loan Shifting @ Lower Interest Rate’”

  1. ashalanshu says:

    Dear Ratnesh, the exact benefit just on the basis of interest rate difference can be calculated easily in a loan amortization template in exl. file in your PC. Please check it. Now add the value of transfer cost and compare.



  2. ashalanshu says:

    Dear Ratnesh, what about switching charges to be borne by you in the process?



    1. Ratnesh Jain says:

      Dear Ashal,

      There will not be any pre-closure charges from my existing bank but the new bank will charge processing fees to the tune of 0.15% which is minimum. The question is how much will be the monitory gain/ loss if I shift. Will the interest portion of EMI paid which was calculated on the basis of 17 years term gets adjusted against principal when am closing the loan just after 3 years?

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