Do Your Math before You Shift Your Home Loan

Applying for a Home Loan is a tedious task. Not only does it sap you of all your energy over the course of time you spend anxiously waiting for the loan to get approved, but also the paperwork involved is immense. After maybe a million signatures on various legal and bank documents, you finally get the home loan. After so much effort, you vow to yourself, that you would never get into another loan and just somehow see this one through.

However, home loans have a long tenure ranging anywhere between 20 to 30 years. The EMIs drain out a good portion of your pay check and by the first five years you are already beginning to wonder if all this was worth it. With the high EMI, you are unable to save much anymore and the situation is unlikely to change anytime soon. So what do you do? The ideal solution would have been to raise an immediate lump sum of money and prepay your loan and get it over with. However, most banks either fine a heavy penalty on pre-payment or outright refuse to allow a pre-payment option. Besides, raising an immediate corpus to prepay the entire home loan is no kid's play.

The two other viable options that remain are to either get your loan term extended so that your EMI decreases and you have more money to live with each month, or you get your EMI increased so that loan tenure decreases and you wind up the loan at the earliest. If you are evaluating options like these, then maybe you could consider to get your loan re-financed by another bank, which means that the second bank, pays upfront and clears the first bank's loan, and that you now pay that loan amount to the second bank as a per revised structure. An added feature of re-financing is that most banks offering re-financing offer a lower rate of interest as compared to the banks which issue the home loan.

However, before jumping into a refinance scheme, one should first see if one stands to gain from the shift. It shouldn't be a case of from the frying pan into the fire. There are many online calculators which allow you to calculate if you would end up paying more or less overall, or how much your monthly liability would be. Also take into account the additional cost of service charges and processing fees.

After all these calculations, one may proceed with shifting the home loan, if one stands to gain, by either decreasing their loan tenure, or by decreasing their EMI depending on one's personal needs.