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Why Borrowers Switching their Home Loans?

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With rising property prices any individual those who wants to buy a home end up taking a Home Loan. It involves a huge sum of money and lengthy procedures to get the loan sanctioned. But what if you are not happy with your lending bank after you get your loan? Is it a compulsion for the borrower to continue with the bank even if it means that it is unrewarding for you? Well the answer is NO!! Any borrower can opt for Home Loan balance transfer from one bank to another at any point of time in the tenure after the first 12 months.

The Home Loan transfer process involves requires the borrower to send a letter to the lending bank requesting a transfer following which the bank provides a No Objection Certificate (NOC). The NOC along with a bank statement of the outstanding loan amount is submitted to the new lender which then carries out capital transfer with the old lender and the process is complete.  A loan transfer is however is almost like getting a new loan which involves credit approval, legal verification of documents and evaluation of the property.

This may seem like an easy procedure, but why at all should one opt to transfer their Home Loan? Here are a few reasons that one might have for transferring their Home Loan:

  • Lower Interest Rates in other banks- This is the most common reason as to why people opt for the transfer more so in cases where the borrower had opted for fixed interest rate rather than floating rate and the bank is not ready to negotiate. In such a case if the borrower finds that the Home Loan rates are lower in other banks than the one from which they have procured the loan then they can easily opt for the loan balance transfer.
  • Poor service of the bank- The lending bank may not provide privileges and special offers to the borrower that they are entitled too. They may also deny giving other top up loans that the borrower should have been able to avail.
  • Reduced collateral- As the borrower has already paid a part of the loan in the previous bank the principal loan amount reduces and thus the borrower can free up a few of their collateral when opting for a loan transfer.

Things to keep in mind before opting for the Home Loan transfer process:

  • The borrower should always calculate the net benefit from the transfer process before jumping in to it. The loan balance transfer involves various processing fees, stamp duty, legal charges, valuation fee, technical charges etc. So if you are opting for the transfer just on the basis of just the reduced interest rate, think twice and calculate your net benefit as it may turn out that you are ending up spending more than you had speculated.
  • Sometimes the new lender bank tries to lure in the borrowers by offering to give them loan at lower EMIs for a longer tenure. This may seem like a lucrative offer to the borrower but in turn increases the amount that they have to pay as interest due to longer tenure.
  • Remaining tenure- If the borrower is in the last leg of the loan repayment then it is advisable that the borrower does not opt for a loan transfer as it would not be profitable.
  • Pre payment penalty- Some banks charge a pre payment penalty of about 2-5% of the principal loan amount. It is preferable not to opt for transfers with such banks.

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