A home loan transfer is quite simply changing the lending institution for your existing home loan and avail the benefits available to new customers in the prevailing market.
Scenarios when home loan customers go for home loan transfer or refinancing option-
Mr. Sharma has taken a home loan from X bank at 10% and he has been quite diligent in serving EMIs for last 2 years. One day he gets to know that Y bank is offering 9.10% to new customers taking home loans. He becomes tense and thinks why i should be paying more?
Mr. Rakesh is looking for bigger term and lesser EMIs so he may have more cash with him on per month basis. He starts looking for new bank which can give him bigger term and lesser EMIs on the same home loan.
In both these situations home loan transfer is a very wise option on consumer’s part.
How Home Loan Transfer is Possible?
Well yes. A home loan transfer is also known as refinancing or balance transfer. This is an option that most individuals opt for to avail the benefit of lower interest rates prevalent in the markets. Generally, the existing borrower of a bank, who is about two or more years into his loan tenure, does not get the benefit of falling interest rates in the market.
Customers interested in availing this could discuss with their bank on re-negotiating the interest rates based on the good repayment track record, etc. If the bank is not amenable, then they could shift to a bank that offers a lower interest rate.
How does the process work?
This requires the need of submitting a request letter to the existing lender for a home loan transfer. Based on their conveyed request, the bank will give a consent letter / NOC and a statement mentioning the outstanding amount. This needs to be provided to the new lender, who then sanctions the new loan amount to the previous lender for an account closure. Once the transaction is over, the property documents will be handed over to the new lender, and the remaining post-dated cheques / ECS will be cancelled.
The new bank that is being shifted to, will offer you a loan based on the current home loan rates they are offering to their home loan applicants. Click here to read more about Right time to switch your home loan.
What are the costs in refinancing option?
A good home loan consultant must be able to get 100% waiver on all costs like processing fees of new bank and pre-payment penalty by existing bank. A prepayment penalty was earlier charged by the existing lender, which can vary 1% to 2%of the principal outstanding of the loan at the time of refinances. Some banks like ICICI, SBI and PNB etc. have waived this fee, but some banks could still be charging a penalty. It is recommended to check with your bank and try to negotiate a waiver as the RBI and the NHB (National Housing Bank) mandates clearly are not in favor of a penalty for prepayment in the case of a floating interest rate loan. Also one should remember that they will also need to pay a processing fee to the new lender, which could also be negotiated and waived in this high interest rate regime. This can range anywhere between 0.5% and 1% of the loan applied. Most banks restrict this amount to Rs 5,000.
Consider all these costs when comparing the total loan cost between the two offers. If you feel there is a significant amount of interest to be saved from the move then you can make a profitable switch.
It should be well noted that for a home loan transfer one needs go through all the procedures involved afresh. These include a credit appraisal, legal verification of property documents and technical evaluation with the new bank. A loan will be approved only when conditions are met. This also includes the good CIBIL score.
A good home loan consultant must be able to take you through all this process without attaching any extra cost to you.
Apart from saving on interest there are scenarios other than discussed already for home loan transfer, which include:-
Bank does not agree to change loan terms: You might want to re-negotiate certain terms and conditions with your bank. For example, you might wish to extend the tenure of your loan to lower your EMI, but your bank may not be ready for this.
Top-up loans: The property value might have climbed much higher from its original price. On the basis of this you might want a top-up loan to meet a financial requirement or for a home renovation perhaps. If your lender is not open to finance this you might opt for a new lender.
It is mandatory to get a statement from the current lender stating that property documents will be dispatched within a certain time frame to avoid hassles on this front.
Also, remember that a loan switch will not be possible if one have been irregular with loan repayment with the current lender. Therefore, we mentioned that maintaining a good reputation with banks and a good CIBIL score are both, equally important and necessary, and mandatory.
We hope that we have answered all the possible questions on home loan transfer.
So considering all aspects, home loan transfer is a good option to lower your EMIs and overall pay lesser.
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