Why is it not a right time for switching your Lender?
With some banks and non-banking financial companies (NBFCs) reducing home loan interest rates in recent times, there is a big disparity between interest rates for home loans charged by various service providers. While home loan is a long term product and interest rates are likely to fluctuate over time, the disparity of one service provider offering a lower interest rate than the other has had a lot of people thinking of switching their home loans with the cheaper service provider.
While it is a good idea to move a high paying loan to a service provider that is charging low interest for the same loan, the move must be explored as a last alternative. Let us look at various aspects of switching home loans in today’s economic scenario and alternatives of bypass such a change.
Current Home Loan Market Scenario
The Indian home loan market has been offering a number of discounts in recent times. With the State Bank of India and ICICI Bank offering home loan discounts for women borrowers, HDFC Bank initiating a loan discount scheme offering home loans at 10.15% for all loan amounts there have been discounts galore. Punjab National Bank and ICICI Bank two of the popular public sector and private banking players active in the home loan market have also introduced discounted schemes.
While ICICI Bank is offering a fixed rate scheme with interests between 10.25 to 10.50% for all loan amounts, PNB has waived off all documentation and processing charges for new loan applicants. Financial experts believe that such home loan discount schemes are likely to continue over the festive period especially with inflation decreasing slowly and real estate market limping back to its earlier levels.
Is it a right time for switching your Lender?
Sometimes the temptation of discounted schemes is so lucrative that older home loan customers with other banks and NBFCs think of switching their home loans with the service provider offering discounted interest rates. So is it worth the hassle of switching a home loan in between?
The answer to this question is both yes and no as it all depends on the amount of the loan, the tenure period and the discount being offered. Since home loan has become a competitive industry, small difference in interest rates is a common thing. Banks and NBFCs offer discounts to attract new customers and a discount offers a window of opportunity for banks and NBFCs to increase their business.
Usually such discounted schemes are too insignificant for older home loan clients to make a switch and usually offered for new customers only. Even if the discounts are open for all customers, financial experts believe that economically speaking if one bank offers a discount, the other usually follow suit in a short span of time. The same is true while interest rates are increased. Since interest rates are dependent on RBI monetary policy, there is no chance of a large discrepancy in interest rates for home loans over a long period of time.
Downside of Switching Home Loan or your lender
The biggest downside of switching home loan service providers only because of interest rate discounts is the fact that any switch requires substantial paper work and formalities. By the time all formalities and paperwork is resolved chances are that your older service provider has also initiated the discount scheme equivalent to the new service provider thus making the chance irrelevant.
Before taking a final decision to switch home loan service provider, it is better to explore the following options.
Talk to the Current Bank for a Discount: Before making the switch it is a good idea to talk to the current bank or home loan service provider. One may also write a formal application to the bank or NBFC concerned for a discount at par with other loan service providers. Usually banks and NBFCs like to retain their old customers and any mention that you may plan to switch the home loan in case interest rates continue to be higher than other players in the market usually gets a positive response.
Opt for Internal Switch: Banks and NBFCs allow existing customers to change to a lower interest rate scheme after taking a conversion fee for switching of home loan plans mid tenure. One can explore such an internal switch in case the benefits of the discounts are worth the switch.
