Due to a high disparity between interest rates for existing and new customers, several home loan customers are unhappy with the high rates they are being forced to pay. But when banks start discriminating between you and its new customers, it’s time for you to transfer your home loan to a lower interest rate and save money!
So here is a 5 step guide to transfer your home loan to lower interest rate:
Step 1: Cost Benefit Analysis
Analyze your situation, after which you will be able to decide the viability of transferring your home loan. Here are a few broad guidelines that will help you:
If your home loan is on a fixed interest rate, then you will have to pay a pre-payment penalty to transfer your loan. In this situation it is not advisable to transfer your home loan.
But if you have a high floating interest rate, then transferring your loan to a lower interest rate will be beneficial. Most leading banks are now offering interest as low as 8.3% per year.
If you have a home loan with long repayment tenure, then transferring will benefit you, as a longer time-period implies higher benefit.
You must take keep an eye out for hidden costs in the process. For example, some banks do not include documentation charges in the processing fee. Also, when a new mortgage deal is prepared, a Stamp Duty has to be paid on that (which is not included in the processing fee).
Next step is to get an NOC (no objection certificate) from your bank along with:
your payment history and
list of your documents that the bank has
This process may take 1 – 3 weeks, varying from bank to bank. At this stage, your current Bank will try to retain you by offering to slash the interest rate. It is best to take this offer and get a counter offer from another bank, with a little more effort.
Step 3: Apply To New Bank
Now that you have all the required documents ready, it’s time to apply to a bank of your choice.
For this you will have to get an NOC from your housing society/builder and submit proof of ownership, proof of income etc. to the bank. The bank will then check your ability to pay the EMI.
Since the process differs from bank to bank, it is not possible to list a standard procedure here. While applying, you can decide to top up the balance on your home loan, reduce EMI or reduce tenure.
Step 4: Credit Approval
The bank will now evaluate your application and decide your eligibility. There is a chance the bank may want further details in this process. This is a time consuming process, as different banks have set different procedures. This process may take 3-4 weeks, varying from case to case. The bank will carry out extensive background checks on you before they give you a credit approval. It will:
Re-evaluate your home loan
Check your credit history
Check the authenticity of ownership
May also require extra documents from you
After the Credit Approval process is complete, the bank will give you a letter stating the interest rate at which the loan will be sanctioned along with terms and conditions. Once you get a credit approval from the new bank, it’s time to make the final decision to switch.
You have two options:
Switching your home loan from your existing bank to the new bank
Switching your home loan within the same bank to a lower interest rate
Step 5: Documentation With Chosen Bank
In the final stage, you will need to complete the documentation process with the chosen bank. Both, your old and new bank will have a specific requirement of set of documents to complete the switching process.
A catch 22 situation arises in case of transfer to the new bank as the old bank will release your documents only if they get the cheque for the balance principal amount and the new bank will release the cheque only after all the documents are submitted to them.
To solve this, a meeting is held between representatives of the two banks. A cheque of the balance principal amount is handed over to the old bank, following the hand-over of your loan papers to the new bank. This ends the transfer process of your home loan.
You can save up to 30% of outstanding principal, calculate your savings here. It is quick and easy to use. You can also Signup with us to avail a free evaluation of your home loan by our experts today!
Our customer, Mrs. Smruti Prem saved Rs. 10,41,905 by switching home loan from DHFL to SBI.This is what she has to say, “I just gave them the documents SwitchMe asked for, signed the forms, and visited bank for signing the agreement with SBI after loan sanction. Thanks for the smooth service.”
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