Why and how to switch banks for existing Home Loans?

Three years ago, Ram and Sita, a newly married couple, bought a new house in one of Mumbai's suburbs. It was their dream to own a home in a metro city, and as such, they always paid their EMIs on time. They even budgeted their finances to ensure they didn't miss an EMI payment. They didn't mind doing it, because for them owning a house was very important. But one day, they happened to see an advertisement to switch home loans to a lower rate of interest; they were intrigued. After all, it could help them reduce their EMIs and would help repay the loan earlier. 

Today, various banks and financial institutions are eager to attract customers with new updated offers and schemes. And as a home loan borrower, it makes financial sense to grab the best opportunities, especially if the loan offer you are considering is better than the one you currently have. So understanding the whole procedure is necessary for you to reduce EMI costs while saving more in the long run. 

As the banking sector grows, it has become extremely competitive, as banks and financial institutions have their own directives for customers looking to switch home loans. If you are not familiar with such rules and policies, you may end up with expenses and charges that you hadn't previously considered. For instance, your existing bank may charge you penalties for switching to another bank, while the new bank may charge you processing fees. IDFC FIRST Bank maintains complete transparency in its terms and conditions, be it for a new home loan or in case of a home loan transfer. 

Before jumping into this process, there are some things you should know. 

When should you consider switching banks?
 

The proper time to switch banks is when the interest rate is lower on a particular offer than your existing home loan. To ensure it is a financially smart move, remember the interest rate should be lower by at least 1.75% or 2%, and the tenure left for your existing loan to end should be longer. This will result in a significant reduction in your EMI.

The whole switching process can be elaborated as a ten-step process:

Step 1: Apply to the New Bank
 

Speak to the bank where you want to transfer your home loan. Get all the relevant information about the charges involved in the process, and only then apply.

Step 2: Submit Details of the Present Loan
 

Next, you need to submit all the necessary documents such as income, identity and address proof and details of your current home loan.

Step 3: Receive a Sanction Letter From The New Bank
 

Once the new bank evaluates your documents, you will receive a sanction letter, if the bank deems it appropriate. The process may vary depending on the bank. IDFC FIRST Bank FASTTRACK balance transfer facility is a convenient way of home loan transfer.

Step 4: Apply for the First Set of Documents with Your Current Bank
 

After receiving your sanction letter, apply for your first set of documents to your current bank and loan account statement too. These are needed to be submitted to your new bank.

Step 5: Get a NOC From The Current Bank
 

Speak with your current bank to receive a No Objection Certificate (NOC). This letter will contain information regarding your loan - the total sum of the loan, the amount outstanding and also if there are any pre-payment charges.

Step 6: Submit Necessary Agreement Documents to The New Bank
 

After receiving the NOC, submit all the required property-related documents to your new bank, such as the registered agreement paper.

Step 7: Evaluation of The Property by The New Bank
 

This is a critical phase of the process. Your new bank will evaluate your housing property, and you may have to submit the property papers for legal verification and valuation of the property. This process could take up to a few weeks. IDFC First Bank FASTTRACK facility aims for faster addressal to ensure a better customer experience. 

Step 8: The New Bank Will Issue a Cheque in The Name of The Current Bank
 

Once the above process is completed, and the new bank is fully convinced regarding the property and all legal documents, it will issue a cheque with the outstanding amount of the home loan in the name of the current bank.

Step 9: Closure of the Existing Loan by The Current Bank
 

On receiving the cheque, the current bank will close your loan. After one or two weeks, you will be handed the original documents of your home loan. You can then submit these documents to the new bank.

Step 10: Signing the Loan Agreement with The New Bank
 

Now that you have your existing loan account closed with the old bank, you can proceed towards signing the loan agreement with your new bank by submitting your original documents related to the loan agreement.

Bank charges when switching banks
 

1. Penalties

They are also known as switch overcharges and balance transfer charges. While switching banks, the existing bank may ask you to pay the penalty, which is calculated on the outstanding loan amount.

2. Processing Fees

The bank charges a fee for the processing exercise that involves activities like loan application, verifying information, subsequent paperwork etc. 

3. Pre-payment Charges and Mortgage Registration Charges
 

You may be charged with pre-payment or foreclosure charges as you foreclose on the old home loan. Also, it can be helpful to check if mortgage registration charges are included in your initial home loan transfer expenses. 

After considering these aspects, we hope that you can plan and execute your home loan balance transfer in a way that maximises your savings and financial benefits.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.