Published on: Feb 15, 2016 @ 03:14
A home loan balance transfer or refinancing is an easy option through which most of the people avail the benefit of lower interest rates prevalent in the market. Most of the Indian banks in home loans do offer the option to transfer existing home loan to another bank. So, you can avail this option to save on home loan interest rates.
Reasons for switching Home Loan
Sometimes, the existing customers are unhappy with the high rates due to a high disparity between interest rates for existing and new customers. Then, it’s time for you to transfer your home loan to a bank offering a lower interest rate. This is easy now as pre-payment penalty on floating rate loans has been abolished.
Often, after taking home loan from bank, you find later that the terms and conditions of the home loan are not according to ones expectations. You might want to re-negotiate certain terms and conditions with your bank. For example, you might want to extend the tenure of your loan and lower the amount of your EMI but your bank do not agree to that, then you can shift to a bank that offers the same.
If the value of property is climbed up much higher in comparison to its original price then on the basis of this you want a top-up loan to meet further financial requirements or for a home renovation perhaps. If your lender is not open to finance this you might opt for a new lender.
Sometimes you are not happy with your bank’s service and accessibility and wish to transfer the loan.
You should always try to switch the loan in the early tenure of loan. It is not advisable to transfer your loan after 2-3 years of loan payment. As you have already repaid most of the interest amount. The interest component of your equated monthly installment (EMI) remains very high in the initial years. The higher the rate of interest or loan tenure, the slower is the reduction in principal in the first few years of the loan.
Remember that a loan switch will not be possible if you have been irregular with your loan repayment with your current lender.
You should do proper market research before switching home loans.
Check the benefits: Too much spending in the process of the home loan balance transfer is not a very good idea. You should always check all the benefits and facts thoroughly before transferring your loan such as the processing fees, legal charges, valuation fees, stamp duty, technical charges and other charges that a new bank would charge. Then compare it between the two offers.
The processing fees can range anywhere between 0.5 per cent and 1 per cent of the total outstanding loan. Some banks may even waive the fee if you bargain hard. If you feel there is a significant amount of interest to be saved from the move, then you can make a profitable switch.
Compare the total outflow: If you get your loan tenure increased by the new lender by reducing your EMI, it also increases the total amount you pay to the bank because the interest keeps on adding to the outstanding loan amount. If you are paying higher EMIs with your current bank, compare the total outgo for both banks and then take a decision. The longer the tenure, the higher will be the interest payments and higher will be the chance that you will pay more interest than the principal.
You should prefer to stay with your bank if you are not hard-pressed for money, pay a larger EMI and finish off your loan as soon as possible to save all the money you would overpay in the longer tenure. Make additional repayments to save you interest and help you pay off your loan quicker.
Check Credibility: Make it sure that the new lender is credible and the current lower interest rate offered by them is not a just short term promotional gimmick.
Bank’s Service Quality: Ensure that the new lender is good when it comes to customer support.
Terms and conditions: Before signing on the agreement letter, you must read all the terms and conditions of both banks.
Your loan transfer is only possible when you are regular in loan repayments to your current bank. Remember that for a home loan switch over you need to go through all the procedures involved afresh. These include a credit appraisal, legal verification of property documents and technical evaluation with the new bank, etc. Therefore, you should not fall for only an interest rate, or benefit, that is only marginally better but you should also consider other factors before going ahead with the balance transfer of your home loan.
Ajay Verma, founder and writer of TheHousingWorld, a real estate and mortgage news website. He has over fifteen years of rich experience in the above mentioned industries.