Is Transferring Your Home Loan a Good Idea?
Over the last two years, RBI has steadily reduced the lending rates which would have a direct impact on the new loans. This will enable the banks to slash the interest rates on various loans.
When it comes to home loans, the existing customers always pay more interest rate than the new customers. Hence, naturally, the borrower looks for options to transfer the home loan to another bank to lessen the burden of interest rate.
The lenders offer attractive lower interest rate to gain business. However, the borrower must consider some of the aspects before the switchover.
Transfer Process- Not So Easy as It Seems
Most of the borrowers believe that it is easy to transfer the home loan from one lender to another. Applying for a transfer is just like applying for a new home loan all over again. You need to submit a letter to your current lender, requesting for transfer. After the lender gives a ‘No Objection Certificate', you can approach the new lender the balance transfer.
The new lender will demand all the legal documents for approval. If you fail to submit any of it, the chances are higher for rejection. Though some financial institutions are lenient with the rules, there might be tricky terms and conditions, less interest rate and financial benefits.
Calculate the Financial Benefits
If the new lender offers you a considerably lower interest rate, the transfer may prove to be beneficial. Also, consider the tenure and EMI amount carefully. If the span is longer with less EMI amount, the interest rate keeps adding on to the principle amount. Calculate the outgo for both the banks and make up your mind for the reliable one.
If the remaining tenure in the current bank is less than 5 years, it is best not to go for the change as the cost of processing and other charges will expunge your financial benefits. Switching home loan on an early period is profitable provided the tenure and interest rate are favorable.
Approach the Existing Bank Before Making a Move
Discuss with your existing loan provider your reasons for the switch. If they do not want to lose their customer, they might offer you a relaxation on the interest rate and EMI tenure. This could save you a lot of time and energy.
If your existing bank does not come up with such offers, you can go ahead with the transfer. The penalty for switching your home loan may vary up to 5% on the principal amount. Some banks do waive off the entire amount. Negotiate with the lender and get at least partial amount waived-off.
Knotty Terms and Conditions
At the end of the day, any lending institution would want to earn a profit from their customers. Though the home loan transfer may seem attractive, the terms and conditions may play a spoilsport. The new lender may lay down conditions such as taking insurance policy or opening savings accounts for your family etc. Hence, before opting for the switch, go through the terms and conditions to avoid any tricky situations later.
Home Loan Transfer Good or Bad Idea?
Whether the shift is beneficial or not is purely based on the status of your loan and economic scenario. After RBI has cut down the risk-weight, several banks have slashed the interest rate by 10 points on home loans alone. But you must have a comprehensive knowledge of the balance transfer and term and conditions.
There is home loan balance transfer calculator available online which allows you to compare interest rates on home loans offered by various banks. Make sure you check all the points mentioned in this article before going for a shift.
If you are planning to apply for a new home loan, click here to check your eligibility.