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Sunday, December 27, 2015

Home Loan Transfer


Frustrated with the bank from which you have taken home loan? This is the case with many of us and home loan transfer is recommended to such individual's. Another term for home loan transfer is refinancing or balance transfer. It is basically transferring the outstanding loan amount (principal loan amount) from one bank to the other of your choice.

When is home loan transfer recommended?

There are many reasons when you should think about transferring a home loan as listed below:

  • One of the main reason why home loan transfer is recommended is when the banks continue to charge higher interest whereas other banks offer the loan at low interest rates. This results in loss to the borrower.\
  • If you think that existing loan tenure is too short then you can ask bank to increase the tenure length but on the other hand reduce the EMI. However if banks do not consider your case, then you can consider a transfer.
  • If you have made EMI payment on time then you can ask the bank to reduce the rate. However if banks deny this, then choose another bank.
  • Service issues with the bank.

But the loan transfer is a win and loss situation for both the banks but a win situation for the customer in the long run. New bank will benefit, since they are getting a new customer and on the other hand existing bank will lose a customer which eventually is loss making for them. However not everything is an easy process as there are many procedures and conditions involved with both the banks as follows:

  • Existing lender: They are most likely to delay issuing the no objection certificate (NOC) or consent letter which states the balance amount on the loan. Remember that getting all the home loan documents is not easy and you should be ready for multiple follow-ups. ECS cancellation and post dated cheques will also be cancelled.
  • New lender: Any credit application i.e. loan or credit card involves rigorous back ground check by the banks. Although getting a new customer especially for a home loan which is highly profit making for the bank, they do not take any risk in providing a loan to a risky person who can become non-performing asset for them. And in order to identify such applicants, banks will check your credit rating with CIBIL i.e. they will gather data for all the credit applications you have taken or have applied to evaluate whether you are credit worthy enough. In addition to this, banks will also check all the legal documents of the property amongst others. If your property is resale one, the more documentation would be demanded by the bank. Apart from these, banks will also consider age, annual income amongst other factors.

Even if you pass the above test, there are further important points you should be aware of and most important being the various charges such as:

  • Processing fees: It can be either a flat fee or 0.5% (ideally) of the loan amount.
  • Legal fee
  • Stamp duty: Ideally 0.1%
  • Valuation fee
  • Documentation fee

Points to consider before moving to another bank:

Nothing comes for free and this applies to home loan refinancing as well. Before you finally decide to move, negotiate with the existing bank. If your repayment history is clear they might accept your conditions in order to avoid losing a customer.

  • Interest rate should not be the only reason for balance transfer and if that is the only reason for the transfer, then do a savings calculation with new and old interest rate along with the above mentioned fees.
  • Also remember to read all the terms and conditions, hidden charges of the new and existing bank.
  • Check whether the interest rate offered is not for only a limited period.
  • If you were unhappy with the service of the existing bank then check whether similar issue exists with the new bank or not. Make use of social media page of the bank.
  • If existing bank, agrees to reduce the interest rate then verify whether it is at no extra cost. And also whether the interest rate is for the full loan tenure and not short term.

Almost every Indian bank offers this facility so go for it and save money.

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