There has been a great increase in the number of borrowers wanting to transfer their home loan from one lender to another. The main reason for this is that it is an efficient manner to repay off your loans. In July 2018, the Economic Times reported that there has been an increase in the number of borrowers engaging in such activities to 20% of all the mortgages that have been sanctioned.
The home loan transfer is carried out by simply taking a loan from a cost-efficient lender and repaying the debts of a previous lender in full. The borrower then becomes liable to make the payment of the equated monthly installments to the new lender. a lender is considered as a cost-efficient lender when he provides better interest rates on the loan and when he provides low or no prepayment penalties, processing fees, and goodies.
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Things to consider before opting for a home loan transfer
It has been already stated that there are many benefits to the home loan transfer and that there are many borrowers that are willing to do so. However, certain factors need to be considered while doing so. Some of these factors have been listed below.
Certain banks offer loan facilities only to salaried individuals. In case the borrower is a self-employed person, then he may have to cross-check with the bank to confirm if he is eligible for the transfer or not. The borrower that wishes to transfer, should also enquire into the fee details of making the transfer of your outstanding loan amount. Most of the banks charge 1 percent of the total outstanding loan amount as the fee for the transfer.
Thus in cases wherein the outstanding amount is high, the fee that the borrower has to make is also high. The borrower can also check with the bank to which he is making a transfer if they provide a balloon payment option which is a method you make the payment of the lump sum to the end of the tenure. Balloon payments are beneficial as it helps the borrower to save on the interest amount.
Cost of transferring the loan:
The banks that are offering such transfer facilities charge the same. There is a fee that needs to be paid to the bank in which the borrower already has a loan pending and there is also an amount that is paid to the bank to which the person is making a transfer of his home loan. The cost of transferring the mount must be calculated and considered on terms if it is actually worth the transfer.
There are quite a few advantages in transferring those loans which are acquired for a shorter period. The various costs that may be incurred include stamp paper fees, documentation charges, processing fees, etc. and thus you must consider refinancing your loan after comparing it to your financial capacity.
Terms and conditions of the transfer:
While making commitments with the lenders, the various terms and conditions of the transfer must be considered. You must consider if the terms and conditions of the transfer are beneficial to you as in some cases it may include conditions such as transferring your salary account to their bank and this can involve lengthy paper-works that need to be carried out.
Tenure of the existing loan:
If the borrower is in the second half of his tenure to repay the loan, then it may not be worth the transfer as there may be only a few years to complete transfer and interest may have already been paid in the first half. If you transfer the amount in the second half of your loan tenure then you may have to pay interest again. Thus always ensure that you transfer loan or refinance in the early stages of the loan. While transferring the loan it is important to consider the credibility of the lender as well.
Should a home loan transfer be initiated?
Most of the borrowers believe that it is easy to make a home loan transfer from one lender to another. However, transferring is similar to availing a new home loan. To carry out the home loan transfer you will be required to make an application to the current lender informing that they are willing to make the transfer. Then after the lender provides the borrower with the No Objection Certificate, he may approach the new lender to make the home loan transfer for the balance amount.
The new lender may further demand the borrower to produce the various legal documents for verification and approval. If the borrower fails to provide the required documents there are chances that the home loan transfer may be retracted. The process may be a lengthy procedure and may not be obtained easily however some banks may be lenient with the rules and provide less interest rate and financial benefits.
It is also important to know how to calculate the financial benefit to decide whether the home loan transfer is beneficial or not. If the new lender is willing to provide you with a loan for a lower interest rate than the previous lender, then it is a good option to make the transfer. The borrower will also be required to consider the tenure and the EMI that he is liable to pay the new lender.
If the tenure of the loan is long and the amount payable as EMI is less, in such cases, the interest will be added to the principal amount. After making the calculation it is important to make a comparison between the amount that is payable in each bank. If the tenure of the loan is less than 5 years, then the home loan transfer is not recommended as the transfer includes certain charges which can expunge the financial benefits so provided. It is also recommended that a switch in the lenders should be made in the early stage of the loan’s tenure.
Before making the home loan transfer, you shall discuss the same with the lender that has provided you with the existing loan. If the lender does not want to lose their customer, then he may consider reducing the interest price and increase the EMI tenure. If the lender refuses to make any concessions then you may carry on with the transfer. There may be a certain penalty that needs to be paid by the borrower for the transfer and generally, this amount is 1-5% of the principal amount. Some banks even waive off the penalty amount. It is always better to request the bank to concede unnecessary procedures and complexities can be avoided.
What are the factors for home loan transfer?
Some of the factors for transferring the home loan are:
- To save on interest cost and to reduce the EMI
- To shift from fixed interest rates to floating interest rates
- In order to increase the tenure of the loan
- In order to obtain better home loan deals and customer services
What are the factors against home loan transfer?
Some of the factors against home loan transfer are:
- Interest should not be the only reason for the home loan transfer. If the loan has already exceeded two years, then it is not recommended to transfer the loan as you have paid the maximum of the interest.
- The loan procedure needs to be followed from beginning all over again. In other words, you will have to get the loan approved all over again i.e. credit appraisal, legal verification of property documents and technical evaluation with the new bank, etc.
- Sometimes the financial institution uses home loan transfer to attract customers and later on increases the interest rate. This method followed by banks is called “fly-catcher” rates of interest.
It is to be concluded that whether making the shift is beneficial or not depends on the status of your loan and your economic conditions. The various terms and conditions of the home loan transfer need to be read and understood to avoid any future complexities. In cases of good credit records then you can even negotiate the terms of the transfer. Some banks also provide high top-up facilities and the amount could be used for the purpose such as the renovation of your property, etc.
Thus summing up it is to be stated that the person may transfer the loan based on his eligibility. He should however consider the various factors listed above to ensure that the home loan transfer is beneficial to his financial capacities.