Paying a home loan with high-interest rates and charges? Is the expensive EMI on your home loan turning out to be a big burden? If your answer is yes, it may be time to do a home loan transfer. That's right. Make use of the available option of transferring the home loan to the different bank. A housing loan transfer done correctly may just take away all your worries. Before you take the all-important decision to change the home loan to a different bank, here are top 8 things to take into consideration.
Certain banks will give home loan facility only to the salaried individuals. In case you are self-employed, it is crucial to check with the new bank if they are ready to for home loan transfer or not. For the new bank, a housing loan transfer means taking the risk of the loan. So, they are a bit cautious about taking this in case there is no fixed salary of the borrower.
A major reason why borrowers want to do a home loan transfer is lower interest rates and hence a lower EMI. However, highs costs linked to a home loan transfer may reduce the benefits. With your new bank, check the various fees, including application fee, and a legal fee, that you will have to pay for switching your outstanding home loan. This fee is usually a percentage of the outstanding loan amount. For the old bank, check the pre-closure charges that you will incur for closing the loan with them and taking it to a new bank.
While a home loan transfer may seem attractive on the EMI front, do keep in mind that each bank has its own set of rules. You should carefully go through the literature (documents) provided by the bank. Look for any terms and conditions (T&C) that mandate you to keep a certain amount of money as a fixed deposit. There could also be a requirement of taking a third-party product such as life insurance policy. While the interest may be lower in a new bank, forcing things in the name of 'our conditions' will hike up the overall cost.
A housing loan transfer is good economics for you if done in the early stages of your home loan tenure. Ideally, it should be done where you have serviced the home loan for 4-5 years for the full tenure of 20 years. At an early stage, getting even a 0.5% reduction in your home loan interest rates may lead to big interest-savings. Conversely, doing a housing loan transfer after 10 years or halfway down the 20-year loan tenure, in this example, will lead to negligible savings given the effort and hassle.
This is the all-important letter given to you by your current bank with the details of outstanding principal for the new bank to clear. Even in this digital age, some banks it rather difficult for switching customers to get a foreclosure letter. Your existing bank's loan origination team may try to open dialogue with and try to lure you back. If they offer the same deal with a lower interest rate, you may stay. However, if you have already made a decision in favour of the new bank, focus on getting the foreclosure letter in hand. The foreclosure letter is very important in the housing loan transfer.