Home Loans are a long-term financial commitment with tenures typically ranging between 10 to 30 years. During this time there is a possibility that you may not be happy with your bank or lending institution, or that your existing interest rate may be too high compared to market rates.
There certainly will arise a thought under such circumstances to transfer your home loan from your current lender to another. However, as a borrower, you need to look at other aspects as well before moving your loan.
Document Vetting for Refinancing – Even though it’s a transfer of a loan, it is still a new loan for the lender, for which they would require all documents that you originally gave your current lender for vetting process. Your financial statements may have also changed since you availed the loan, so that will also have to be made available through pay slips, Form 16, income tax returns and more.
Processing Fees – Since this will be like refinancing your loan, there is bound to be a processing charge involved. Most banks and NBFCs charge anywhere between 1 per cent and 3 per cent of the remaining loan amount to be paid back as the charge.
Waiting Period – Your loan agreement with your current lender will determine when you are allowed to transfer your loan. You will have to wait until you pay the stipulated amount or complete the waiting period as stated in your agreement before you can find a new lender.
New Tenure and Interest Rate – The point of transferring your home loan is to get a better deal, unless you have severe service issues with your lender. You should try and reduce your tenure in such a scenario to pay off the loan earlier and also look out for lenders who offer a better rate.
Clear Any Pending Dues – The bank will need to give a clearance certificate that will allow the new lender to take charge of the loan. For this clearance you need to make sure that all your pending dues are clear. For instance, pending EMIs and late payment charges need to be paid off before you can transfer your loan.
Also if your home loan is on a fixed interest rate, you will have to pay a pre-payment penalty to transfer your loan. You may want to rethink about transferring your home loan in such a scenario as the penalty may eat up on the advantage given by the new lender.
Collateral Revision – Home Loans are automatically collateral loans as the said property papers will lie with the bank until the entire loan is cleared. If you have already repaid a huge chunk of your loan, do not offer the complete original collateral to your new bank. It is like giving a security which is double the amount of your loan outstanding in some cases. You can use it to take a separate loan instead, if the need arises. Instead, offer your new bank a lesser amount of collateral. If the bank still insists, negotiate for reducing the interest rate further.