Switching to a cheaper home loan is a preferred choice for most home loan customers. But it may not be possible always.
Take a closer look at your existing home loan. As strange as it may sound, you may not be in a position to switch your home loan to another lender even if you are getting a better deal elsewhere!
Possibly you are awaiting the central bank's rate cut to see whether some other lender reduces their loan rate, even below what your existing lender does, but you may not be able to opt out, even if you want to! And worst part is, you did not even know that.
All the time we keep checking the new home loan products in the market, the new rates offered to the new borrowers, just to understand whether we are paying the correct rate on our own loan, but there are several conditions under which an attractive offer or a much cheaper deal may not be available for you! Find here:
(1) Do you have a loan with higher percentage funding?
The lending norms have changed over the last couple of years several times. RBI & NHB have both instructed the banks & the NBFC-s respectively to reduce the funding percentage so that the borrower should be less leveraged, as a strict norm. So, if you have borrowed 85 or 90% of the property cost earlier, switching the loan to a new lender where only 75 to 80% is allowed, will be an issue.
(2) Is your property still under-construction?
You may wonder why the new lender is unable to switch your home loan as your property cost have gone up in last two years, since you booked the under-construction home, by 30% and above! Though you had taken an 85% funding then, the market value of the property has grown to such an extent today, that the same loan amount stands to be much lesser than 75%!
Well, the answer is, unless you have received the possession, it cannot be considered as a 'ready' property & market value will be of no consequence to the new lender. They will still have to consider the 'agreement value' to take over your loan and there you fall short!
(3) Have you taken funding on Stamp duty & Registration charges?
Funding on the property cost along with select ancillary charges are nothing new. However, funding on the statutory charges like stamp fee & registration cost isn't allowed any more by RBI. Hence banks will stay away from taking over such loans where those costs have been considered earlier. You may fall short of that amount of funding while switching your loan from the previous lender who took these two into consideration.
(4) Are you under a fixed rate loan?
Under the Fixed rate loan, lenders are allowed to levy pre-closure penalty ranging between 2-4% plus service tax, as per your agreement. the penalty is applicable on the principal outstanding amount. Though we have a general knowledge that such penalty is 'waived off' on home loans by RBI(as well as NHB), one may not know that it isn't applicable for fixed rate loans. The savings quotient may be reduced or even become nullified due to this spike in the wheel.
(5) Do you have a guarantor in your loan?
If you borrowed with an additional support from a guarantor, it may be trouble switching your loan, due to- (A) the guarantor may not oblige again, or (B) the new lender may not have a policy of accepting a guarantor for additional comfort.
(7) Have you laminated your property's registered deed?
Often people make this mistake of trying to 'protect' the document beyond required means & go ahead and laminate the property deed, not knowing that lenders DO NOT accept laminated deeds for mortgage.
(8) Have you/your previous lender lost the original deed and you have a certified true copy only?
Though this isn't a common occurrence, however, we have come across many people who have gone through this experience. Please be aware that not having the original deed is a high-risk for any lender and they may refuse to switch your loan to their own kitty, if this is the matter.
(9) Is your repayment not regular to your present lender?
This point may not require any explanation. If your track record with the previous lender isn't good & regular, your loan may not get bought over. Whatever may be the reason, like- forgetting to pay on time, traveling, change of address, any dispute.....etc. etc.will not hold good for the new lender.
(10) Have you quit job & started your own venture recently?
This is a common happening in vibrant India today and we come across very good profile clients having great net-worth and qualification, not being able to switch their loans due to change in profession.
If you become a 'self-employed' from an 'employed' status, then lenders will require at least three years business continuity proof to find whether your business is stable enough, for your to service a Home loan. Your great investments, healthy bank balance, your superior qualification, your expensive asset-base or your experience will not hold good. However sad it may sound, this is being 'practical' by the lender as they need to see your regular monthly income to allow you to get into an EMI (equated monthly installment)-based loan.
The above experience has been common in the last couple of years since all borrowers have become well-aware of the market-trend and comfortably switching loans and then discovering these issues.
Take an expert advice if you are facing any of the above conditions. Happy switching! Happy saving!!