As i mentioned in one of my previous post “Step Motherly Treatment to Existing Home Loan Customers” that existing customers always pay higher Interest Rate compared to New Customers. First thing which come to the mind of borrower is Home Loan Transfer from existing lender to new lender who is offering lower interest rate.
Besides Interest Rate, sometimes Service issues also force borrower to opt for Home Loan Transfer though Interest Rate remain single most imp criterion for Home Loan Transfer. Before deciding upon Home Loan Transfer, it is critical to consider following 5 points to avoid any future disappointment
1. Home Loan Transfer is like applying for New Home Loan
The biggest mis-conception among borrowers is that Home Loan Transfer will be easy and smooth process compared to new Home Loan application. Let me clarify that for New Lender, Home Loan Transfer is any other new Home Loan application. The borrower has to undergo complete Home Loan process again. The complete documentation is done again before Home Loan is approved. Also, please note it is not necessary that New Home Loan lender will approve your Loan Transfer (read New Home Loan) application. In many cases, if new lender is not satisfied with legal documentation then your Loan Transfer request will be rejected. Some Home Loan provider like DHFL, Tata Capital or Cooperative banks are bit soft on eligibility & documentation criterion. If you transfer Home Loan from these institutions to say SBI then in all probability your application will be rejected unless you provide all documents required by SBI.
2. Financial Benefits of Home Loan Transfer
In my opinion, if you are transferring your Home Loan for reduction in Interest Rate then it is advisable to transfer only if the Interest Rate offered by new Lender is lower by 2% from existing Interest Rate on home loan. If difference between new and old interest rate is less than 2% then financially Home Loan Transfer is not beneficial.
3. Remaining Home Loan Tenure
If remaining tenure of existing Home Loan is less than 5 years then it is not advisable to opt for Home Loan Transfer. Reason, you will not get any financial benefits considering cost attached to Home Loan Transfer even with reduced Interest Rate.
4. Home Loan Transfer Cost
There are no free lunches, Please check on cost attached with transfer. Keep in mind that you again need to pay Processing Fees. Even if, Processing fees is waived off but some Statutory Costs like o.1% Stamp Duty on MOD etc cannot be avoided. These costs vary from state to state, kindly check on all cost elements before deciding.
5. Communicate with Existing Home Loan Provider
Last but not least, before taking final decision it is advisable to discuss with your existing Home Loan Provider. Even they also don’t want to loose customers. Trust me, if you inform existing loan provider regarding Home Loan Transfer then they go extra mile to retain your account. Reason existing loan provider has borrowed your Home Loan money with long term commitment. It is administrative hassle and loss making proposition for existing loan provider to again lend the money pre-paid by you while transferring Home Loan. If you are transferring, only to reduce Interest Rate then in all probability existing Loan provider will reduce your interest rate by charging conversion fees (vary between 0.5% – 1% of outstanding loan amount). You can opt for such offers rather transferring Home Loan.
I hope, i clarified all the points related to Home Loan Transfer. Please take your decision after careful consideration. There is no universal formulae to decide on Home Loan Transfer as each Home Loan case is unique.
Please feel to ask your queries/clarification in the trail Comments section. I will answer the same.
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