Multiple HomeLoans : Prepayment Strategy

POSTED BY Samir ON March 20, 2013 10:42 am COMMENTS (5)

Dear Experts,

I was about to take some action on homeloan prepayment, but thought to take a second expert opinion

Situation – 

Have two loans

1) SBI Max Gain (Lives in this house) – outstanding 3 lac. Balance 6 lac. (I can withdraw 6 lac). Interest Rate 8.5%

2) IDBI Loan (Investment Rental Prop) – Outstanding 9.90 lac. Interest Rate 10.75%

I was planning to move 6 lac from SBI Max Gain to IDBI to save on interest. 

My only apprehension is the SBI Max Gain gives me liquidity (In case of emergency, I can take out money). Once I will move this money to IDBI, I will not be to able to take it out. 

What should be my strategy?

Also, I am also planning to take another home loan once I substantially reduce/closed one of these loan. 

Additional Question –

1) Can I take another home loan from SBI, when the first one is running? 

Warm Regards

Samir

5 replies on this article “Multiple HomeLoans : Prepayment Strategy”

  1. Dear Samir, yes first of all contact SBI to link your loan to Base rate instead of PLR. At the same time, pay 0.56% conversion fee for getting new ROI of 9.95% on your existing home loan in SBI. In all probability, within next few days, SBI ‘ll announce a rate cut & your new ROI may become 9.7%.

    Please do nothing for IDBI loan as of now. Try to make more payments into Max Gain to reach the stage when your Drawing power ‘ll be equal to parked surplus & there ‘ll be no more Interest outgo. Now here onwards, focus onto IDBI loan. Paying those 6L Rs. in IDBI ‘ll not help you for the fact that IDBI ‘ll not be closed but at the same time, interest liability ‘ll increase in SBI too. Also paying IDBI means losing the liquidity of your money parked in Max Gain. Think over it.

    Thanks

    Ashal

  2. Samir says:

    Ashal,
    For remaining 3.9 lac, I was planning continue with EMI.. will try to prepay as and when I accumulate some money.

    You are right… my SBI Loan will reach to 11.7% in few months. (Which I really missed).

    So for the time now.. it should be business as usual.. try to close SBI first and then move and attack IDBI home loan.

    Is there any other approach? I can think off..like 50-50?

  3. Dear Samir, thanks for the clarifications. What ‘ll you to for the remaining 3.9L Rs. loan of IDBI. there is more to it, the 8.5% of SBI rate ‘ll soon become 11.75%, if you had opted for 8, 8.5, 8.5% ROI for first 3 years in 2010. Please take not of this.

    Thanks

    Ashal

  4. Samir says:

    Dear Ashal,
    Thanks for your response.

    Few Clarifications –

    1) I DON”T want to take new loan right now.. will be in future (3-4 years) when I have closed one of these loans

    2) Also, I have NOT really decided on new property, I think I will probably upgrade home or consolidate my property investment. But again in future… I may even NOT go for it. Probably just keep on doing MF SIP etc.

    3) Right now, I was only planning to save on interest rate.

    Warm Regards
    Samir

  5. Dear Samir, why do you want to take so many home loans? Are there no alternatives to you other than real estate? Regarding the situation & action to be taken, what ‘ll you achieve by paying 6L Rs. in IDBI when 3.9L Rs. ‘ll remain pending?

    Please clarify.

    thanks

    Ashal

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