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Should I transfer my home loan to ICICI Bank at a lower interest rate?

Nitin

Nitin Narkhede  |77 Answers  |Ask -

MF, PF Expert - Answered on Oct 29, 2024

Nitin Narkhede, founder of the Prosperity Lifestyle Hub, is a certified financial advisor with eight years of experience in helping clients design and implement comprehensive financial life plans.
As a mentor, Nitin has trained over 1,000 individuals, many of whom have seen remarkable financial transformations.
Nitin holds various certifications including the Association Of Mutual Funds in India (AMFI), the Insurance Regulatory and Development Authority and accreditations from several insurance and mutual fund aggregators.
He is a mechanical engineer from the J T Mahajan College, Jalgaon, with 34 years of experience of working with MNCs like Skoda Auto India, Volkswagen India and ThyssenKrupp Electrical Steel India.... more
Pandian Question by Pandian on Oct 06, 2024Hindi
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I am 54 yrs and took 37 lakhs home loan from SBI jointly with my wife who is 49 yrs for the period of 25 in 2022 and the monthly EMI comes to 33500/- and we have a balance of 35 lakhs approximately. The ROI at the start of loan was 7.15% which is now 9.65%. Recently I have an offer from my ICICI bank account branch for the balance transfer of the loan with the interest rate of 8.5%. Shall I opt for the same without any consideration or look for other hidden things if any?

Ans: Transferring could lead to substantial savings, but confirming these aspects will help you ensure no hidden costs reduce the benefit. You need to consider Processing Fees & Charges: prepayment Charges, Loan Terms, Legal & Documentation Costs, and Future Rate Revisions. If everything checks out, it could be a financially sound decision to make the switch.
Nitin Narkhede
Founder & MD, Prosperity Lifestyle Hub https://Nitinnarkhede.com
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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8614 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 06, 2025

Money
Hi Mam, I need your prompt advice as i need to take decision on the same. I am 55 years and have 5-6 Years in retirement. Post retirement have planning and secure. Now coming to the point that i am staying a capital of state where i pay house rent Rs.40000/- PM. My take homme monthly salary is approx 6 Lacs. My organization have policy to pay 50% interest subsidy on interest of Housing loan. I am planning to purchase a flat value 1.25 Cr in which 80 Lacs Banks are ready to give for next 12 Years . monthly EMI will be 85-90 K and out of which approx 28K will be subsidy and 40K my rent and 5K saving of IT in Housing loan interest . Ideally it will cost to me approx. 15-20 K Per month additionally . After retirement i will sell the flat and square off my balance home loan. Please suggest is it worth of taking ....or i should continue to pay House rent and add 20 K liability in Mutual Fund contribution . Urgent reply please
Ans: You are evaluating whether to buy a flat worth Rs. 1.25 crore or continue renting. Let us assess this situation considering financial, practical, and retirement planning aspects.

 

Financial Considerations
1. Monthly Cost Comparison

Current rent is Rs. 40,000 per month.
EMI for the home loan is Rs. 85,000-90,000 per month.
Subsidy from your organisation reduces the EMI cost by Rs. 28,000.
Tax savings on housing loan interest further reduce the cost by Rs. 5,000.
Net additional cost to you is Rs. 15,000-20,000 per month.
 

2. Opportunity Cost of Down Payment

Buying the flat requires Rs. 45 lakh as a down payment (including registration).
Investing this amount in mutual funds for 5-6 years can yield higher returns.
Evaluate if your current mutual fund contributions can bridge this gap later.
 

3. Post-Retirement Loan Liability

Your home loan tenure is 12 years.
After retirement, loan repayments will depend on other income sources.
Selling the flat to clear the loan may not always fetch expected value.
 

4. Rent vs. Ownership Costs

Owning a flat involves maintenance, property tax, and repair costs.
Consider if these costs are affordable post-retirement.
Renting offers flexibility and avoids these additional expenses.
 

Lifestyle and Practical Aspects
1. Stability vs. Flexibility

Owning a flat provides stability and security of residence.
Renting offers flexibility to relocate post-retirement if needed.
 

2. Emotional Value of Owning a Home

Buying a home can give emotional satisfaction and a sense of achievement.
Ensure this decision aligns with your long-term financial health.
 

3. Rental Yield Analysis

Flats often have low rental yields compared to their cost.
You may not earn substantial rental income after clearing the loan.
 

Retirement Planning
1. Impact on Retirement Corpus

Redirecting Rs. 20,000 to mutual funds can grow significantly over 6 years.
This additional corpus can support your post-retirement lifestyle.
 

2. Liquidity Needs Post-Retirement

Flats are illiquid assets and may take time to sell when needed.
Liquid investments ensure easy access to funds during emergencies.
 

3. Alternate Strategies

Continuing to rent and investing in mutual funds may create better retirement wealth.
Combine equity and debt funds for an optimal mix of growth and stability.
 

Tax and Subsidy Considerations
1. Housing Loan Subsidy

The 50% interest subsidy reduces your effective EMI significantly.
This benefit reduces the immediate cost of buying the flat.
 

2. Tax Savings on Interest

Tax benefits under Section 24 further reduce the financial burden.
These savings must be factored into your overall cost analysis.
 

Final Insights
Buying a flat offers stability but increases financial obligations. Continuing to rent allows flexibility and creates additional retirement wealth. Evaluate the long-term implications on your retirement corpus before deciding. Align this decision with your financial goals and retirement needs. Engage with a Certified Financial Planner to create a detailed retirement plan and optimise your investments.

 

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

Ramalingam

Ramalingam Kalirajan  |8614 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 13, 2025

Asked by Anonymous - May 13, 2025
Money
I have a home loan of 48lakhs in Tata Capital @8.85% Floating roi and currently 104 emis are left but i am getting offers from government bank @8.25% roi should i switch or should i continue with tata as they don't follow repo rates & how do i finish it asap with step up or extra emi payment if paid one extra emi per year please guide me
Ans: You are holding a home loan of Rs. 48 lakhs with Tata Capital.
The current rate is 8.85% (floating), and 104 EMIs are remaining.

You also have an offer from a government bank at 8.25% interest.
You are thinking of switching.

Also, you are keen to close the loan early using extra EMI or step-up method.
This is a great sign of financial discipline.

Let us evaluate everything carefully.

First, Review Your Current Home Loan Setup
Tata Capital charges 8.85% floating rate.

They don’t follow RBI repo rate directly.

That means your rate may not reduce quickly when RBI cuts repo rate.
Private NBFCs often link to internal benchmarks.

That gives them more control, less transparency.
This could lead to higher cost over time.

Second, Compare with Government Bank Offer
You are getting 8.25% from a government bank.

Most likely, it is linked to RBI repo rate.

That gives more transparency and faster rate reduction during cuts.
Also, public banks may give better customer support long term.

Lower rate and better structure both are positive.

Third, Cost of Switching Must Be Considered
Switching a home loan is not free.

There may be processing charges, legal, and valuation costs.

Sometimes the cost is Rs. 10,000 to Rs. 25,000.
This cost must be compared to interest saved.

If interest saving is big, switch is worth it.
If not, better to stay.

Fourth, Check the Remaining Loan Tenure
You have 104 EMIs left. That is around 8.5 years.

At this stage, interest portion is still high.

So switching now can still help.
If you were near the end of tenure, switching may not save much.

But you are in mid-to-late phase. It can still be useful.

Fifth, Repayment Strategy – Step-Up or Extra EMI
You want to close early using extra payments.

That’s a very powerful approach.

You can follow two smart strategies:

Step-Up EMI every year when your salary increases

Or pay one extra EMI every year

Even one extra EMI yearly will reduce the total EMIs by 5 to 6.
If you do this consistently, you can close loan at least 1 to 1.5 years early.

If you combine both methods, it becomes very powerful.

Sixth, Benefits of One Extra EMI Every Year
Loan tenure gets shorter.

You save a lot of interest.

Extra EMI reduces principal directly.
So next month’s interest becomes lesser.

This cycle keeps repeating.
So total interest goes down every year.

Seventh, Lump Sum Repayments are Also a Strong Option
Got bonus, incentives, or profits? Don’t spend fully.

Use part of it to repay principal.

Even Rs. 1 lakh lump sum once a year can reduce many EMIs.
You don’t need to wait for end of year.

Whenever cash is available, pay part pre-payment.
It saves interest from that month itself.

Eighth, Plan Your Repayment Calendar
Mark dates in calendar for extra payments.

Plan them with yearly increments or festival bonuses.

This gives clarity and target.
Don’t leave it to random mood or emotion.

Being organised gives confidence and results.

Ninth, Should You Switch Lender or Not?
Let us assess the switch properly:

You should switch if…

New lender is offering repo-linked rate (like EBLR)

Their service is reliable and terms are clear

The cost of switching is below Rs. 25,000

You will continue for at least 5 more years in loan

You can continue with Tata Capital if…

They are ready to match new rate (ask them first)

Your relationship and process is smooth there

Switch cost is high and savings are low

But if Tata is not reducing rate automatically,
and they don’t pass on rate cuts,
you are better off moving to a government bank.

Tenth, What to Watch While Switching
Don’t go for the lowest rate only. Check terms.

Some lenders increase rate quietly over time.

Ensure your new loan is linked to repo rate.
Not internal or fixed benchmark.

Ask for written confirmation.

Eleventh, Use a Certified Financial Planner for Help
A Certified Financial Planner will guide you smartly.

They assess switching cost, benefit, and fit for you.

They also help in calculating step-up EMI plans.
That saves time and gives clarity.

Twelfth, Avoid These Mistakes While Repaying Early
Don’t use emergency fund to prepay home loan.

Don’t break retirement investments to close loan.

Home loan is a long-term debt.
Closing early is good. But not at any cost.

Your future safety is more important than loan closure.

Thirteenth, Tax Benefit Angle
Home loan gives tax deduction under Section 80C and 24(b).

These reduce your tax outgo.

So don’t rush to close loan just for peace of mind.
Balance tax benefits with interest savings.

If your tax benefits are low, prepayment is more attractive.

Fourteenth, How Much Extra EMI You Can Afford
Start with one extra EMI per year.

If you get salary hike, increase EMI voluntarily.

Even 5% increase in EMI yearly helps a lot.
Don’t wait till you “feel rich”. Start small.

Let compounding of interest savings work for you.

Final Insights
You are already thinking in the right direction.
That is your biggest strength.

Tata Capital loan at 8.85% is slightly high.
If a government bank is giving 8.25% with repo-link, it is better.

But check the switching cost.
Also speak to Tata Capital once.

Ask them if they can reduce the rate.
If not, prepare to switch carefully.

Start one extra EMI per year.
Do part prepayment when bonus or gift money comes.

Plan a step-up increase in EMI every year with salary hike.
Keep emergency fund and retirement fund untouched.

You are on the path to a debt-free life.
With this focus, your goal is very much possible.

Get support from a Certified Financial Planner for exact steps.
You don’t have to do it alone.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

Ramalingam

Ramalingam Kalirajan  |8614 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 18, 2025

Money
Hello Sir I have a question that i have existing home loan of now rs 2900000 and 25 years of time has left rest i have paid , i am investing 1 lac per month in mutual funds and investing in gold as well shall i pay my laon first or keep.investing in mf and gold and keep paying emi plus extra amount in loan my loan roi is 8.80%
Ans: Your approach is sincere and responsible. Managing Rs. 29 lakh home loan while investing Rs. 1 lakh monthly needs clarity. You also invest in gold. Your focus seems on building wealth and becoming debt-free. Let’s assess your current situation from all angles and guide accordingly.

Understanding the Current Scenario
You have a home loan balance of Rs. 29 lakh.

Loan interest rate is 8.80%.

Loan tenure left is 25 years.

You are investing Rs. 1 lakh every month in mutual funds.

You are also buying gold regularly.

You are paying regular EMIs.

You are also thinking to prepay the home loan partially.

This situation is not uncommon. Many in your position face the same decision. Let us now break it down for better understanding.

Loan Repayment vs Investment: Core Conflict
Loan EMI gives guaranteed interest saving.

Mutual funds and gold have market risk. Returns are not fixed.

Loan rate is 8.80%. This is a high cost in long term.

Mutual funds can give 12% in long term. But no guarantee.

Gold can give 6-7% return over long term. Also not guaranteed.

So comparing loan vs MF or gold is not just about return.

Risk, liquidity, and financial goals must be seen together.

Evaluating Home Loan Repayment Strategy
Home loan gives tax benefit on interest under Sec 24(b).

But this benefit reduces over time as interest part reduces.

Long tenure increases total interest paid.

If you prepay loan now, you save high future interest.

Partial prepayment every year brings great interest saving.

Even Rs. 1 lakh prepayment per year can cut 4-5 years from loan term.

So prepayment makes sense if no other high priority goals pending.

Understanding Mutual Fund Investment Potential
You are investing Rs. 1 lakh monthly. That is commendable.

Mutual funds help build long term wealth.

Actively managed funds perform better than passive ones in India.

Index funds don’t beat inflation much after tax.

Active funds adjust to market cycles better.

Your SIP of Rs. 1 lakh may give strong corpus in 15-20 years.

Taxation on MF has changed now. Need to plan redemption smartly.

Short-term capital gains are taxed at 20%.

LTCG above Rs. 1.25 lakh is taxed at 12.5%.

Role of Gold in Portfolio
Gold acts as hedge in portfolio.

It protects against currency devaluation and global risk.

But gold alone should not be large part of investment.

It gives 6-7% return in long term.

It is not cash flow generating.

Use gold for diversification only. 10-15% is enough.

Assessing Your Loan Repayment Capacity
If you can spare extra Rs. 20-30K per month, loan prepayment makes sense.

Continue EMI as usual. Add lump sum when possible.

Avoid using your mutual fund SIP for prepayment.

Don’t stop gold purchase fully. Just reduce it if needed.

Balance your cash flow between all goals.

Combining Both: Smart Way Forward
You can do both prepayment and investments side by side.

Continue Rs. 1 lakh monthly in mutual funds.

From bonuses, windfalls, use part for home loan prepayment.

Avoid stopping SIP. It compounds over time.

Increase SIP by 5-10% yearly if income grows.

This way you build wealth and reduce debt slowly.

Tax Impact and Liquidity Planning
Prepaying home loan gives emotional peace.

But MF investments are liquid in emergencies.

Loan prepayment is not reversible.

Once paid, money is locked in property.

Keep emergency fund ready. 6 months expenses is good target.

Your Child and Family Needs
You have a child. Future education will need funds.

Mutual funds can fund child education and marriage.

Prepaying loan is less flexible than investing for child's future.

So don’t rush to be debt free if child goals are underfunded.

Cash Flow Planning for Better Balance
Track your monthly cash flow closely.

Prioritise emergency fund first.

After that, child education fund.

After that, home loan prepayment.

Avoid big gold purchases if loan EMI is tight.

Keep gold for portfolio balance only.

Emotional vs Logical Decision-Making
Loan-free life feels peaceful.

But wealth creation needs patience.

Don’t get swayed by fear of loan.

Instead, make clear plan.

Mix investment with prepayment.

What You Can Practically Do Now
Continue SIP of Rs. 1 lakh.

Build emergency fund equal to 6 months expense.

Invest at least Rs. 5-10K monthly for child education.

Reduce gold purchase to 10-15% of monthly investment.

Once emergency fund is ready, prepay Rs. 1-2 lakh per year in home loan.

Final Insights
Your loan is at 8.80%.

Mutual funds can beat this in long term.

But loan is risk-free return.

Emotional peace matters too.

Balance both wisely.

Stay consistent.

Do yearly review of all investments.

Increase SIP and loan prepayment step-by-step as income grows.

Avoid random investment decisions.

Be goal-based always.

Invest through certified professionals who guide with long-term vision.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

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