Switching home loans

Q: I want to change my home loan from one bank to another bank. What are the terms one must know before switching the home loan?

Sam Pawel,

21st August 2013

Home Loan

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switching of home loan

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Replies (4)

The process of changing your home loan from one bank to another is called a Balance transfer. Before finalising on the new bank there are a few things that you may have to note

Rate of interest difference:

Is the new bank offering you a cheaper rate of interest? If it is then what is the difference? You have to be very clear about this to begin with

Tenor:

If you have taken a loan for 20 years previously are changing to a new bank after paying your loan in your current bank for 3 to 4 years then are you taking a fresh tenor of 16 years or are you again opting for a 20 year tenor? If so please remember you will pay a very high interest outflow for the first 2 to 3 years all over again. So you may have to decide on this factor as well

Top up:

If the home loan has been paid for more than 1 year then you can avail a top up basis the revaluation of the property, this top up will be available to you at the same rate as the home loan.

Documents transfer:

Once the loan is taken over to a new bank please remember to apply for a LOD ( List of documents) from the new bank and keep it in your procession, this is the proof of acknowledgement that the new bank has received all your original documents from the old bank)

Please also remember there are no foreclosure or pre closure charges and the current bank cannot charge you any of these charges for transferring your loan.

Finance Buddha,

13th March 2014

Comment

Thank You Amreesh for such an elaborate and informative answers. What are the bank professionals going to check before transferring my loan from Bank A to Bank B?

Sam Pawel,

21st August 2013

Comment

According to the banking professionals, the decision for loan transferability depends on two factors- the present construction stage and the individual developer. To get bonus marks for loan transferability, the project needs to be on schedule, without delay.

Javed,

21st August 2013

What are the factors to consider before opting for loan transferability? Need experts advice.

Sam Pawel,

21st August 2013

Comment

The factors to consider before opting for loan transfer-ability are as follows: 1) Switching home loan: In a hurry is not a good idea, since haste creates waste. A borrower must negotiate with the existing lender for a good deal. Existing financial institutions sometimes offers a rate cut after negotiations.

2) On changing the lenders: The given loan tenure may taper off if the existing EMI is kept at constant. This leads to significant savings, although a borrower feelsl the pocket crunch for foreclosure charges.

Amreesh Murugan,

21st August 2013

3) Time Frame: The time-frame, for which the low rate is applicable must be determined and put to bed, since a number of lender offer low rates for the first few years only to revert it back at the actual rate after sometime.

4) Modern Technology: Usage of modern technology is highly recommended to compare the loan offers. Different loan comparison websites carve out a clear image how much one can save by switching to a different lender.

Amreesh Murugan,

21st August 2013

5) The aspect of quality customer service is something to look up to. The reputation, which a particular lender has inherited all this time, can be compared via the websites and user reviews, to get a brief notion about what's to come.

6)Getting over inertia is an important aspect to consider. A slight cut of 1% can also do wonders and save money. If the processing fee is kept at a nominal rate, it would contribute towards a better deal.

Amreesh Murugan,

21st August 2013

7) Operational Issue: Operational issues might also evolve, for which a No-objection certificate from the builder is a de rigueur. Generally, developers issue the NOC during property transactions, however, a second-time issuing would be charged marginally.

Amreesh Murugan,

21st August 2013

Before you switch your home loan you must be well aware of three terms. They are as follows: 1. Tenure Reduction

2. EMI reduction

3. Top up loan

Javed,

21st August 2013

Comment

Here I have discussed all the terms elaborately. Tenure reduction signifies the fact that even after switching to a lower interest rate, the tenure slumps down keeping the EMI constant. This consequently fuels the loan repayment process few notches up.

A top-up loan is generally offered on an existing home loan and the amount depends on outstanding home loan value and individual property money worth. Availability of such loans at low interest rate and lack of inquires during procurement tops it in the preferred list.

Javed,

21st August 2013