Do a financial assessment before you transfer home loan to another bank

The rate of home loan has dropped to 8.5-8.6%. Would it make sense to switch to another bank or financier now?

I am 46 years old and I have a home loan at a floating interest rate of 9.50%. The loan is worth 41.50 lakh, which was taken in December 2010. The outstanding principal amount is about 33 lakh. The rate of home loan has dropped to 8.5-8.6%. Would it make sense to switch to another bank or financier now? Or should I stay put with the current one since most part of the interest has already been paid for?

—Jones

The loan taken is prima facie for 20 years and you have already paid for a little less than nine years and the outstanding tenure is another 11 years. And for the balance principal amount payable of 33 lakh, the interest payout has come down on a monthly basis but will still be close to 20.4 lakh for the remainder of the tenure.

Now consider the other scenario where you switch the loan to another housing loan bank or financial institute where the interest rate comes down by 1%, i.e., to 8.5%, and the loan starts again. Assuming the same tenure of 11 years as in the above case for comparative purposes, the interest payment on this will be close to 20 lakh, i.e., 19.7 lakh, which is better than the earlier workings but quite close to the earlier interest payment of 20.4 lakh. So what should you do?

The best case for you would be to speak with the existing housing loan provider and ask them to bring it down at par with the rates they are giving to a new customer. They may charge you a conversion fees which could be a flat fees, for the conversion, which in financial terms could be the best option for you.

I want to retire 10 years before the retirement age of 60. I’m 29 years old right now, unmarried and I earn 60,000 a month. I live with my parents and have expenses of 40,000 a month, including an education loan equated monthly instalment (EMI) of 30,000, to be paid off by 2021. I want to start a non-government organisation (NGO) at the age of 50, with a cost of 35 lakh. How should I plan for my goals?

—Palak Adarsh

Your expenses currently are on the lower side as you are staying with your parents. So try and maximize your savings. At present, you can save 20,000 per month and post 2021, once your education loan is paid off, you can increase your savings by equivalent of the education loan EMI of 30, 000, thereby resulting in savings of 50,000 per month. Your expenses may increase by that time nut so would your income. The rationale of how to increase the savings remains the same.

Your investments can be made based on your risk profile. Long-term investments should preferably be invested in equity asset class as it has the potential to deliver inflation-adjusted returns but they do carry inherent volatility and, hence, are recommended for the long term.

Subject to the above, you can plan for retirement post 50 years of age and have a retirement corpus as well as a corpus of 35 lakh for starting an NGO.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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