Six Things to Consider Before You Transfer Your Home Loan

The technical term for a loan transfer is ‘takeover of loan’. You approach a bank. It pays up for whatever remains of your loan amount to your former bank. Then, it issues a loan to you on the same amount, but with new interest rates and tenure.

This transaction lets you choose lower interest rates and pay less EMIs. It brings extra business to the bank. Sounds like a win-win? It is!

However, the rate of interest and monthly installments, as relevant as they are, shouldn’t be the only things you consider before choosing an alternative to transfer home loan balance. Here are six other factors that you must explore and weigh before making a decision.

  1. How Much Would a Loan Balance Transfer Help You with Long-Term Savings?

The whole point of shifting loans is to relieve the pressure of higher EMIs and keep you from overpaying. A cost-benefit analysis becomes necessary here. Whether or not you will benefit from transferring the loan depends on four factors.

  • The outstanding loan balance.
  • The remaining tenure of the current loan and that offered by the new bank.
  • The transfer cost of the new bank.
  • The applicable rate of interest.

Let’s assume that you take a loan for ₹50,00,000 for twenty years at 9.70 percent per annum interest. You still have fifteen years left on the tenure. You pay ₹47,262 as monthly EMI and have an outstanding amount of ₹44,74,000. If a bank offers you 8.65 percent per annum with a cost of ₹13,000 for transfer and a difference of ₹2,813 in the EMI, you will save ₹4,93,000 after repaying the loan with the new bank.

For the same loan, if the remaining amount and tenure are ₹22,39,000 and five years respectively, at 8.96{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} p.a. and new EMI of ₹1,153, you will only save ₹58,340. With the transfer cost of ₹10,840, processing fee, administrative charges, and switch-over free, it may not be a beneficial deal.

For a shorter tenure or small remaining balance, switching banks may not give you any significant profit. Use any bank’s online home loan transfer calculator to find out how much you will be saving.

  1. What Are the Correct Collateral Adjustments?

Having something to put up as collateral is an essential part of housing loan eligibilities. When you switch banks, it is not wise to offer the whole original insurance to the new lender.

Transferring a loan is very much like taking a new loan to pay an old one, albeit with some benefits. However, the amount you owe could get reduced because of the rate of interest. It’s why you should offer a part of the original collateral or some other security which is lesser in value.

  1. How Much Will the Switching Costs Put You Back?

Transferring home loan balance is a time-taking process. The bank may also charge a processing fee or a switch-over fee. Additionally, the legal fee, valuation fee, conversion fees, stamp duty, technical costs, and any tax related to documentation.

  1. Are There Any Allied Account Requirements?

A bank may require you to create a savings account with them if you wish to avail their loan service. During home loan balance transfer, you must inquire any charges and the offered facilities regarding the same.

Also, if all your banking is managed elsewhere, getting a new account and understanding how the new lender bank operates may be a hassle you don’t want to tackle at present.

  1. What Does the Fine Print Say on the Contract?

It is recommended that you go through every term and condition if you want to avoid being trapped in the web of technicality.

If the new lender is offering incredibly low interest, what is in it for them? If it turns out to be a short-term offer for promotions, you will have a hard time proving that the bank conned you. If the lower interests are a part of teaser loans, they will get higher in the later years, knocking off chances of any savings you had planned.

  1. Don’t Hurry

Comparing your existing bank’s offers with any new lenders is also a good way to determine how good a deal you are getting. Since switching banks to transfer home loan balance takes time and clean paperwork, you must compare, read through, analyze, and take your time to come up with a decision.

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A Detailed Guide on Home Loan Balance Transfer

For a prospective home loan seeker, the interest rate on loan is the biggest matter of concern. The interest rate on home loans varies according to the banks. It is anywhere in between 9.8{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} to 12{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616}. A home loan bank transfer helps you shift the existing home loan to another bank that offers a lesser rate on interest.

It is not always the interest rate that dictates a home loan transfer; it could also be due to better services and offers. Such transfers are applicable if the customer has paid the EMI for more than 12 months with the existing bank.

The Prime Features of a Home Loan Bank transfer

  • Hassle free transfer of the outstanding home loan amount from one bank to another
  • The home loan borrower has to pay a fee to the new lender, and it is usually up to 1{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} of the loan transferred
  • The transfer of the home loan can be availed only after a given period, the details of which are mentioned in the original loan document
  • After the transfer, the loan borrower owes the new bank or lender the principal loan amount that was transferred plus the charges applicable

The Common Scenarios for a home loan transfer

Apart from the reduction in interest rates, there are other reasons why a borrower would want to change his lender.

  • If the current lender does not agree to negotiations on some of the terms and conditions
  • If the lender is not open to a loan top-up
  • If the borrower is not happy with the services of the current bank

Fee calculation

Loan transfers are beneficial if the borrower is in the early stages of the home loan. For a transfer, the banks charge anywhere from 0.5{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} to 1{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} as the processing fee. Sometimes the fee is a flat amount of Rs. 5,000 to Rs. 10,000.

To calculate the efficiency of a bank transfer, reduce 100 basis points if the tenure left for the loan is less than five years. Likewise, a reduction of 75 basis points should be carried out if the tenure of the loan is five to ten years and 25 to 50 basis points for 15 to 20 years.

The Process

A letter should be submitted to the existing lender asking for a loan transfer. The bank will issue an NOC or a consent letter and a statement of the outstanding amount. Once these documents are provided to the new lender, the loan will get sanctioned, and the account closure with the old bank will be initiated.

Once the transaction is complete, the new lender will get hold of the property documents, and the post-dated cheques will be cancelled.

The prepayment penalty (2 to 5{ed162fdde9fdc472551df9f31f04601345edf7e4eff6ea93114402690d8fa616} of the outstanding loan amount) that was charged by the existing lender is now waived by some banks. This can be negotiated if the bank charges the same.

Points to consider before a loan transfer

  1. Reduced EMI and a longer tenure need not necessarily mean you will be paying a lesser amount. Carefully calculate the total outflow and compare the rates of both the bank before making the decision.
  2. Apart from the processing fee, the borrower will also have to pay valuation fee, stamp duty, legal charges and technical fees as well as other combined charges. Compare these costs and analyse if the reduced interest rate makes a difference.

iii.    The terms and conditions that dictate the loan of both the banks should be investigated. Examine the pros and cons of the terms and conditions before arriving at a decision. Some banks may require the borrower to open a savings account. Such subtle conditions must be analysed

  1. A transfer can be avoided if the interest rate is only marginally better.

Most of the banks in India offer the facility to transfer the existing home loan to another bank. A home loan transfer can help you plan your finances better.

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