Things to consider before Switching your Home Loan
Banks and financial institutes are competing with attractive offers to encourage switching home loan. Borrowers can switch home loan to cheaper loans and save good amount in a month. Stable government has inspired and increased hope of investors in buying a property. RBI has brought down key policy rates drastically to bring balance in the economic slump and increasing borrowing.
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Things to consider before switching home loan
Interest rate:
You need to check the interest rate offered by lending company before you switch your home loan. If lending company is offering marginal rate comparing to existing interest rate, do not switch your home loan in hasty. They may either increase interest rate to your existing rate when you shift or interest rate may be increase more than current rate.
Compare rate when switching home loan:
When you plan to switch your home loan to cheaper loan compare other rates such as penalty on pre-closure, processing charge for new bank, tax benefit on interest and so on. Sometimes you may end in paying more by shifting your home loan.
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Benefit in retaining home loan:
Banks and financial institutes need to retain their customers to succeed in the business. They will offer best rate for existing customers to retain them. Compare the benefit you get by retaining and what you get in switching to new bank. If you get more benefit from switching home loan, best utilize the opportunity.
Shop for a deal:
Competition is market has turned blessing to borrowers and home buyers. Banks and other financial institutes offer lower interest rate to new customers rather than old or existing customers. Before switching your home loan, approach various banks with intent of transferring home loan. Some bank charges less interest but high processing or penalty charge when loan foreclosed. Choose bank which has low or nil penalty charges and processing fee.
Consent Letter from current lender:
Consent letter is nothing but letter from current lender which will have details such as loans taken, outstanding loan amount and prepayment charges if any. Once borrower gets consent letter then he can approach the new bank or potential lender for switching home loan.
Main advantage of switching a home loan is your monthly EMI will come down compare to current EMI. Do not switch your home loan frequently where you will end in paying penalty and processing fee. When switching home loan, existing lender charge penalty on pre-closure and new lender will charge some processing fee. Switch your home loan only if lender offer lower penalty fee and offer significantly lower monthly EMI.
