With the decrease in rates around the corner, many of you may be looking at transferring your home loans to other banks. To initiate the process, you would first need to submit an application to the existing lender requesting for a transfer, basis which the bank will provide you with a consent letter/NOC and a statement mentioning the outstanding amount.
Once you provide the NOC to the new lender, and your previous account is closed, your property documents will be handed over to the new lender and he transfer baptised.
But before you take the leap, work out the maths. Assuming a person has taken aRs 30 lakh home loan for 10 years at 10.5 per cent interest rate, the interest outgo is around Rs 18.5 lakh. In case, the interest rate is 9.5 per cent, the total interest outgo is around Rs 16.5 lakh. This works out to an annual saving of around Rs 20,000. Add to this the other charges as follows while you work out the cot benefits
- Processing fee: The new bank will charge you processing fees on transfer of a loan.
- Stamp duty: Banks need to pay stamp duty to the government on the title deed submitted with the bank the cost of which is recovered form you
- Legal charges: The costs for hiring a legal advisor to validate legal status of the property
- Pre-payment penalty: Pre payment penalty on floating rate home loans have been waivered off.You have to check with your bank for per-payment penalties on fixed rate home loans, if any.
There are also a few things to consider before you take the final plunge:
- There are no benefits of switching the loan when less than five years of repayment is left. It is always better to transfer the loan during the initial part of the tenure to save on interest costs
- Do not go for loan transfer only because teaser loan rates seem very attractive. One should keep in mind that the teaser rate rises after a stipulated time frame.
- One should get a statement from current lender stating that property documents will be dispatched within a certain time frame. Ensure this to avoid back and forth with the documents, in the future.
- A loan transfer will be very difficult if there is an irregular repayment with the current lender. Make sure you pay your EMI’s on time. It also helps keep your CIBIL score high.