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Shifting your loan? Here are some pointers!

A home loan transfer (also known as refinancing or balance transfer) is an option that most individuals opt for to avail the benefit from lower interest rates prevalent in the market.

July 20, 2011 / 03:56 PM IST

By BankBazaar.com


A home loan transfer (also known as refinancing or balance transfer) is an option that most individuals opt for to avail the benefit from lower interest rates prevalent in the market.


Usually the existing borrower of a bank who is about 2 or more years into his loan tenure does not get the benefit of reducing interest rates in the market. RBI has been insisting on lower interest benefits to be passed on to the existing borrowers as well but it seldom happens but is expected to become a reality in the base rate regime. Individuals looking for better interest rates could discuss with their bank on re-negotiating the interest rates based on the good repayment track record etc. If the bank is not amenable, then they could shift to another bank which offers a lower interest rate prevalent in the market.


How does the process work


You will need to submit a letter to the existing lender requesting a loan transfer. Based on your request, the bank will give a consent letter / NOC and a statement mentioning the outstanding amount. This needs to be provided to the new lender who then sanctions your loan amount to the old lender for an account closure. Once the transaction is over, your property documents will be handed over to the new lender, the remaining post dated cheques / ECS will be cancelled.


The bank you are shifting to will offer you a loan based on the current home loan rates they are offering to their home loan applicants.


A prepayment penalty will be levied by your existing lender which can vary anywhere between 2%-5% of the principal outstanding of the loan at the time of refinance. SBI recently has done away with prepayment penalty charges, it remains to be seen if other banks will follow suit!


Also, remember that you will also need to pay a processing fee to the new lender.
This can range anywhere between 0.5% and 1% of the loan applied, most banks restrict this amount to Rs.5000.


Another important aspect is the timing of your loan switch. If you are planning to switch your loan after most of your interest has been repaid, it will not make money sense as you will be shelling out more with the switch!


Factor in all these costs when comparing the total loan cost between the two offers. If you feel there is a significant amount of interest to be saved from the move, then you can make a profitable switch.

Recently SBI hiked its base rate by 0.25%. More hikes are expected from other banks soon. SBI has also withdrawn its teaser loan schemes from the market. On the positive side as mentioned earlier it has also dropped prepayment penalty charges in line with RBI expectations. If your bank (if it

first published: May 17, 2011 03:52 pm

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