Want to transfer your balance home loan? Read on to know more…
Why does one choose to transfer his home loan from one bank to another?
A buyer has to pay significantly large amount as interest on the home loan he borrows. Therefore, a high interest rate is a matter of concern for buyers who have to pay the home loan for a long period of 15-20 years, especially those who have borrowed on floating rates of interest.
Home loan interest rates may vary from bank to bank and range from 8.35 percent to 10 percent. Buyers often try to negotiate with banks and request them to reduce the interest rates or choose to transfer to a bank offering less interest rates.
What is home loan transfer?
It is a process through which a borrower can transfer his loan from an existing bank to another. It is also called refinancing. For example, if you have borrowed Rs 20 lakh from bank A and have paid some installments and later on you find that bank B is giving you a lower rate of interest then you can shift your outstanding loan amount to bank B. Processing fee is charged on this process which varies from bank to bank and some documentation has to be done to complete the transfer.
How to choose a bank?
It is a good idea to transfer your home loan to a bank offering you lower interest rate. To find out which bank offers what interest rate, you can do a research on your preferred banks. Check the processing fee, documents and other hidden charges of the new lender. Compare banks and then choose the one that suits you and offers the best interest rate both, floating and fixed.
How much can you save?
Transferring of home loan may sound easy, but it is a tricky process and without knowing all the nitty-gritty, you may end up paying more. Let’s us take an example. Nikhil Sharma borrowed a home loan of Rs 20 lakh for 20 years at an interest of 9.2 percent. He was paying a monthly EMI of Rs 18,253 to bank A. He continued to pay the same amount for 2 years and then decided to transfer his outstanding loan amount to bank B at an interest rate of 8.9 percent. If his remaining loan amount is Rs18 lakh and tenure 18 years then his monthly EMI will come down to 16,744. You can clearly notice the difference in EMIs.
Apart from this, you also need to check the processing fee and other charges of the new lender where you are planning to transfer your loan. This assessment will help you know how much you can save when you transfer your loan from one bank to another.
What is processing fee?
A fee is payable to the new lender on the home loan account. It usually varies from bank to bank, but you can negotiate with the bank in case you feel it is higher than the market trends. The transaction cost includes the processing fees, documentation charges and stamp duty.
Some banks treat the home loan transfer application similar to a new home loan application. You need to do the maths to check the processing fee and other hidden charges and then see how much you’ll be able to save if you go for refinancing. Processing fees on transfer of home loans range from 0.5% to 1% of the loan amount. “Some banks do not charge processing fee from those customers who hold a salary account,” says Siddharth.