Home loans are necessary evils. Unless there are generous, old, rich uncles in the picture, most of us are dependent on banks to buy our homes. Home loans can weigh us down with high interest rates and decade-long repayment timelines. But one of the ways you can make this a more positive experience is by transferring your home loan to another bank and taking advantage of multiple factors.
Why should you transfer your home loan?
The primary reason is to get the benefit of lower interest rates. For home loan borrowers, the year has begun on a good note with banks cutting the marginal cost of funds-based lending rates (MCLR). The reductions are between 15 and 90 basis points. Effectively, home loans have been slashed by 15 to 50 points. If you are on an older MCLR, then it might be a good idea to switch to a lower floating interest rate that might be available in the same bank. Alternatively, switching to a different bank might prove to be useful in the long run, provided the transfer charges are reasonable.
Another reason is that sometimes you might want to increase the duration of your loan by a few more years to ease the current EMI amount. If your current bank is not amenable to the suggestion, switching to another bank might do the trick, particularly if you have a good repayment track record.
Availing of a top-up of your loan or even an additional loan is sometimes a problematic affair. If your bank is making this into a messy process simply transferring your loan to another, more welcoming, bank will make everything easier.
Now that we have given you reasons to transfer your home loan, here are some steps to do so with ease.
Do the math, make a list
Extensive background reading and research even before you decide to transfer is a given. Once you have made the decision, do a thorough check on interest rates, transfer fees, reviews of the services offered, and other aspects of the bank you are planning to switch to. Pick two or three prominent banks and do a cost-benefit analysis. Figure out what would be your savings (or losses) if you switch to any of them. For example, if you are on a fixed interest rate plan, the penalty you incur for pre-payment might not be worth the trouble of switching. On the other hand, if you are on a floating interest rate plan, then you can easily switch from the higher interest rate to a lower one.
Obtain all NOCs
Once you have decided on the bank you are going to switch to, apply for a No Objection Certificate (NOC) from your current lender. You should also obtain a foreclosure letter along with documents that state your payment history, as well as the outstanding amount. You will also have to get an NOC from your builder along with proof of your income and ownership of the property.
Application and approval
Apply to the new bank for your loan transfer and an additional loan or reduction in EMI or tenure if required. The bank will then carry out exhaustive background checks, check your credit and payment history, and verify ownership. Once satisfied, the bank will re-evaluate your loan and provide a fresh interest rate and terms and conditions.
Final step
The new bank will then approve the transfer of the balance principal amount to the old bank. There might be some delay during this process as your current bank cannot release all the documents until it has received the payment or at least the approval for payment notice from the new bank. This is usually resolved with a few phone calls or a meeting between the representatives of both the banks.
Things to consider in the process
Before you apply to a new bank, make sure that the bank even services the area that your property is located in. If the property is located far away or in areas that don’t fall under the purview of the bank your loan might be refused.
Read every document keenly and unearth hidden charges, if any. Many banks don’t state outright the documentation charges, legal fees, processing fees, etc. that are involved. All of these add up to the cost of the loan transfer, and it might prove to be wiser to stick to your current lender in the end.
Evaluate the tenure of your loan. If you are still in the early years, it might be a good decision to switch but if you only have a few more years left, then the time taken, tedious process, and savings gained might just not be worth it.
Finalising a home is a time-consuming process. Paying for it, even more so. But with a few strategic decisions like transferring your home loan, you can make your life less worrisome and more joyful in the long run.