Should you switch your home loan to a lender offering lower rates? What borrowers should know

• Switching a home loan to a lower-rate bank can save money if costs are justified.
• Check for processing fees and negotiate; some banks may waive these charges
• You will be treated as a new borrower by the new bank after transfer

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Wondering whether you should transfer your existing home loan to another bank? Today’s Ask Wallet Wise explains why it makes sense to transfer the home loan to the new bank.

Should I transfer my current home loan to another bank, which is offering 0.4-0.5 precent lower interest rate on my remaining repayment balance? I have already paid close to 40 percent of my loan amount. 

Is it worth transferring the loan to another bank with a lower interest rate? What is the procedure? Will I get the treatment like that of a new borrower of the new bank? What are the pros and cons?

Expert’s Advice: It is advisable to transfer your existing home loan to any other bank if it offers you a better deal in terms of interest rate. You will need to have a good track record of repayments of your EMI on the existing home loan to be able to get the offer from another bank to take over your existing home loan. There are no prepayment charges on the transfer of the floating-rate home loan.

You will have to consider the processing fees, which you may have to pay to the new lender when you transfer your home loan. It will be in the range of 0-0.50 percent of the loan amount. Processing fee covers charges, including the advocate's fee for property search, title investigation report, valuation report charges, stamp duty, which may be applied to prepare the home loan agreement or mortgage, etc. Some banks have waived the processing fee. It is a one-time fixed fee, in absolute terms, which can be negotiated up on during the agreement.

Since only 40 percent of your home loan is repaid, prime facie, it makes sense to transfer the home loan to the bank offering better rates. You can compute the amount you can save after calculating the interest rate for the remaining balance tenure, adding the cost of transferring the home loan in terms of processing and prepayment charges.

I feel that there may be a difference of 0.4-0.5 percent in the interest rate, so you should be able to recover the same within the next one or two years. This involves the modalities of handing over the property documents from your existing bank to the new bank. The existing lender typically provides a letter addressed to the new lender mentioning the list of original documents available with them as security, and also agreeing to release the documents within a certain number of days after full payment is received. The letter will also state an amount for which the loan will be treated as fully paid off.

Check with your existing lender whether they are willing to drop the rate for you on the remaining balance, which will save you a lot of hassles. If they are not agreeable or are not offering the rate you can get from the market, you should definitely move your existing home loan. Yes, you will get the same treatment as a new borrower.