Bank of Maharashtra has Decreased its Home Loan Rate to 7.00%: Should You Shift Your Current Loan?

Home loans are contracts that can run anywhere from 15 to 30 years. Over time, loan rates and EMIs will change. With time, the EMIs may become much lower than what they seemed to be.

The Bank of Maharashtra has now decreased its home loan interest rate to 7.00%. The lower rate should be appealing for new buyers as well as for those who have already availed of the loan from the bank.

But there is a question that arises in the minds of many existing home loan customers:

“Can I transfer my current home loan to Bank of Maharashtra at this lower interest rate?”

The answer is, yes, but it depends on the borrower’s creditworthiness, credit score, down payment, and many other factors.

That is where a home loan balance transfer comes into play. One interesting fact here is that no one is compelled to wait until the end of the loan. Depending upon what the outstanding amount is, the time left of a loan and the rate being charged, even a slight decrease in the interest rate could help.

Bank of Maharashtra Home Loan Rate: The interest rate has dropped from 7.10% + to 7.00%*

As per the newly updated rates from Bank of Maharashtra, the starting interest rate has been reduced from 7.10% + to 7.00%*.

It is important to note that when we are looking at a 0.10% decrease in a home loan rate, it may look insignificant at first glance.

Isn’t it true that the difference of mere 0.10% hardly makes a difference when it comes to home loan rates?

However, it really depends on how much home loan you have and how many more years you have to pay your home loan.

If someone has a small outstanding balance and a few years left, then the decrease may not impact him/her much.

On the other hand, if there is a borrower who has a big outstanding loan and a long remaining time, then this tiny decrease may lead to good savings.

Here’s a Simple Example: When Your Home Loan Rate Drops Down

Let’s consider a scenario that most people getting home loans are familiar with.

In this example, we will talk about Rahul, a salaried individual who bought his first house some time back.

When he bought his house, he found it convenient to avail himself of a home loan since it spared him from exhausting his savings.

He has now been repaying his EMI without any delay.

But when he checked the prevailing home loan interest rates, he found out that Bank of Maharashtra is offering interest rates as low as 7.00%.

The first thing running through his mind is “It’s just a 0.10% difference. Is it even worth shifting my loan?” Let’s evaluate this mathematically. Let’s say Rahul has an unpaid home loan of ₹50 lakh with a remaining period of 20 years. The existing rate is 7.10%, and the new one that he is thinking of is 7.00%. At 7.10%, the approximate EMI on ₹50 lakh for 20 years comes around to ₹39,066 per month while, at 7.00%, the approximate EMI would come around to ₹38,765 per month. This means that the difference in EMI amounts to about ₹301 per month.

Initially, ₹301 may seem insignificant, but when viewed over 20 years, keeping in mind that the rate would stay the same throughout and ignoring other expenses and revisions in the rate itself, the difference in total scheduled payments over time comes to be around ₹72,000.

This is an illustration and does not guarantee savings. The actual advantage of a loan transfer can vary from case to case, as the borrower might have paid already some part of the loan, the remaining period might be smaller, the new bank may quote a different rate according to the client’s profile and processing or any other costs may apply.

What Does Home Loan Balance Transfer Stand For?

Home Loan Balance Transfer refers to the process that allows you to shift your loan from the bank you are currently borrowing the money from to a different one where you will be able to enjoy lower rates.

As an example:

Bank A → Bank B

You stop paying off the remaining loan amount to your current lender and transfer your loan balance to a new lender who will take care of paying the loan on your behalf right after calculating your credit history and credit score.

In order to repay your loan, you just need to continue paying the installments to your new lender.

Reasons for the balance transfer may include:

– Lower interest rate

– Lower EMIs

– Lesser total interest amount

– Better repayment conditions

– Better customer service

– Possibility to get a more favorable loan

All these reasons may seem appealing, yet ultimately, the decision should be made based on the comprehensive analysis of pros and cons and not only based on the interest rate.

The Importance of 7% to Current Borrowers

The maximum advantage cannot always be taken by those who are borrowing a home loan today.

It could also apply to someone who has already been filling in their EMI on their existing loan.

Consider this.

Suppose years ago, you took a home loan of ₹60 lakhs.

You have made 60 payments so far.

You might still have a major part of your principal to pay back.

If you have just realized that a lender may give you the same loan at a lesser rate based on your profile, wouldn’t it be wise to seek the answer to the following question?

“What will happen to my financial situation if I switch my existing EMIs to another lender?”

5 Things to Consider for a Home Loan Balance Transfer

Balance transferring is not just about shifting banks.

Consider these five important things before going for it.

1. Outstanding Loan Amount

   The outstanding principal amount is the key factor in a balance transfer instead of the original loan amount.

   For example, if the loan taken to begin with was ₹50 lakh and current outstanding dues is ₹12 lakh, the savings you will make due to the interest rate reduction may not be as much if outstanding balance was ₹45 lakh.

   Hence, make sure that you calculate this on the basis of outstanding dues.

2. Remaining Loan Term

   The loan term in a balance transfer is crucial.

   If the tenure remaining is that of 15-20 years, a small decrease in interest will make a big difference over time.

   If there are only 2-3 years still remaining in the loan period, potential savings may not make the transfer worthwhile.

   This is why two individuals with the same interest may achieve very different results with a balance transfer option.

3. Don’t Just Look at Your EMI

   This is one of the mistakes people make.

   A lower EMI does not mean a better loan.

   For instance, if the lender increases your tenure, you will get a lower EMI but pay a higher interest.

   Therefore, compare the following:

   Loan Amount + Interest Rate + EMI + Tenure + Total Interest + Transfer Charges

4. Is it a good idea to switch your home loan to the Bank of Maharashtra?

   There’s no simple answer that can apply to all situations.

   It varies from customer to customer.

   A Bank of Maharashtra home loan can start at 7.00%*, which could be favorable for you if:

   You are currently repaying a home loan that has higher interest rates.

   Your remaining amount due is sizeable.

   You have a long time left to pay off your present loan.

   Your credit history is good.

   The new interest rate you can find is really lower than the effective rate you currently have.

   The amount you expect to save will exceed the sum needed to transfer the funds.

   However, moving your loan might not be a wise financial decision if your remaining amount is not large enough, you don’t have much time left to repay your loan and your costs of the transfer would significantly eat into the amount you expect to save.

5. A Fast and Simple Method to Consider

   Before considering a new lender, first find the last home loan statement and jot down the following:

   1. Amount of principal owed right now
   2. Current interest rate
   3. EMI that you’re paying now
   4. Remaining repayment period
   5. Any applicable charges for transfer/closure

Here, the difference in EMI can be found as given below.

Difference in EMI

—₹301 per month

Realise that the example is just illustration for case when there’ll be loan of ₹50,00,000, tenure of 20 years and fixed rates.

What if Someone Has an Interest Rate of 8%, 8.5%, or Even Higher?

This is where the calculations become even more interesting.

Suppose a debtor is paying more than 7.00% for their loan.

Instead of just saying:

“Can I refinance at 7.00%?”

It is more important to say:

“How much money will I save by refinancing?”

For instance, a borrower with a loan of ₹50 lakhs and 20 years left at 8.50% will save a lot more than someone paying 7.10% who wants to get a new loan at 7.00%.

This is why it is always important to evaluate a home loan transfer separately.

The same offer at 7.00% may yield different saving possibilities for different debtors.

Think Twice: Low Rates Do Not Tell the Whole Story

When one sees a Home Loan rate like 7.00%, it is hard not to jump to the conclusion that:

“This must be the best deal available, so I should switch lenders.”

However, home loans are a long-term financial obligation.

Do a little homework before switching rates:

What is my actual effective interest rate?

Not just the one specified when taking out the loan.

How much principal is left on the loan?

This figure tells how much of the loan principal is still subject to interest charges.

How many more years am I left with the loan?

The importance of the rate difference changes drastically depending on whether we are talking about 3 years or 20 years.

What will it cost me to transfer my loan?

Make a full cost calculation instead of assuming transferring the loan is free.

If the rate you are currently paying is much more than what other offers are presenting, it is worthwhile to explore your options.

You are still paying a large amount. The higher the amount outstanding, the stronger the impact of the interest rate. A lower interest rate across a longer term is likely to result in quite a few savings.

You have a better credit rating now.

If your financial situation has improved since you took out your loan in the first place, you may be eligible for better terms based on the lender’s specific criteria.

You have never had a look at your home loan.

Countless borrowers are focused on paying their EMI every month and fail to evaluate their loan.

Cutting Interest Rate by a Small Fraction May Initiate a Bigger Discussion

The shift from 7.10% + to 7.00%* may seem trivial.

The truth is that to some borrowers it only means a little saving.

But in reality, if someone has an existing home loan, there is still an opportunity to think it over.

You don’t have to keep using the same home loan for the same period of time.

Your revenue may have changed.

Everything else, ranging from your credit score to market rates, could also vary.

It’s always a good idea to take a look and see if there’s something better available.

Common Questions Regarding Bank of Maharashtra’s Home Loan at 7.00%

1. What is the Bank of Maharashtra charging in interest on home loans right now?

   As per current rates, home loan by Bank of Maharashtra starts from 7.00% p. a, though Bank of Maharashtra was charging the interest of 7.10% + RI in the previous update. The actual interest rate for a borrower, however, is dependent on the creditworthiness of the borrower, eligibility, and terms of the bank.

2. Is my home loan transferable to Bank of Maharashtra?

   Yes, your home loan can be transferred to Bank of Maharashtra, subject to certain requirements such as meeting eligibility criteria by Bank of Maharashtra and undergo various formalities including documentation of property, assessment of creditworthiness and approval.

3. Is balance transfer at an interest rate of 7.00% advisable?

   It is determined after knowing the prevailing interest rate, outstanding loan amount, current tenure, and costs incurred in transfer. A lower interest rate does not automatically mean that the transfer will save money.

4. How much can I save by moving my home loan?

   There’s no fixed amount of savings. A borrower who has a larger outstanding balance, a higher prevailing interest rate, and a longer period to pay has a higher potential for savings. The specific amount needs to be worked out by using the existing outstanding principal and tenure.

5. Does my CIBIL score affect my home loan interest rate?

   Yes. Credit history and credit scores are important variables that determine the eligibility and pricing. A good credit history will help in improving the chances of getting good loan terms, depending on the lender’s policies.

6. Should I move my loan merely because another bank offers me a lower rate?

   No. Compare the total costs. Look into the new interest rate, EMI, time to pay the loan, processing charges, transfer costs, and total interest arm.

7. Will I be able to reduce my EMI through balance transfer?

   Yes, maybe. A much lower interest rate can help in reducing EMI if the time taken remains unchanged. But of course, the EMI can also vary depending on the new loan tenure and repayment plan.

Final Thought

The most important thing to be learned from the Bank of Maharashtra’s new interest rate is not only the fact that home loan interest rates rose to 7.00%*.

The most important thing learned is that:

Every home loan should be reviewed periodically.

In case you have a huge amount of the outstanding balance and still have several years on the mortgage with a high rate, it’s worth considering a home loan balance transfer.

However, don’t rush to transfer the mortgage only because you saw a lower rate in the advertisement.

First you should take the outstanding balance.

Consider your current rate of interest.

Estimate your tenure left.

Find out what the real rate may be for you in the new loan.

Calculate how much money you could save.

Then compare these savings with your transferring costs.

The goal of the Loan Bazaar company is to simplify this process.

Because of the long duration of loans (15 or 20 years, for example), even a small change in the interest rate must be understood clearly.

Check home loans, compare your possibilities, and make the right decision for your finances on the basis of approximate calculations.