Home loan borrowers who have tied their loans at higher rates would consider moving your loan to a lender who is offering a lower rate should your existing lender be reluctant to offer better terms.
RBI Governor Raghuram Rajan left key policy rates untouched in the recent bi-monthly review of the monetary policy. However, policy rates have been on a downward spiral since January 2015 and Raghuram Rajan has said that the present policy stance of the central bank is ‘accommodative’, indicating that more rate cuts may be in the offing in the near future.
In such a scenario, home loan borrowers who have tied their loans at higher rates would consider moving your loan to a lender who is offering a lower rate should your existing lender be reluctant to offer better terms.
If you are planning to switch your loan, there are a host of things that you need to consider. FeMoney spoke to experts to tell you the strategy you should adopt and what you should have in mind while planning such a move.
“While interest rates are important, lower interest rates offered by the other bank should not be the only reason for considering a home loan transfer. Loan transfers come with associated processing costs and a new set of terms and conditions. It is essential that you understand these before switching your lender,” says Adhil Shetty, CEO, Bankbazaar.com.
Here are some points to remember while going for loan switch to a new lender:
-Check terms and conditions of new loan carefully: Ensure that the current slashed interest rate offering isn’t a short term promotional offer. In today’s times of teaser loans, it is essential to remember that the teaser rate is for a limited time and will adjust post that period. So make sure exactly how much your interest is and how it would change in time.
–Estimate applicable costs for the transfer: While considering a loan transfer, make sure to calculate that the additional expenses do not outweigh the benefits. Check for the pre-payment penalty charged by the current bank and the processing fee and other charges that would be charged by the new bank.
–Check about pre-payment penalty: If you have a home loan with a fixed interest rate or a personal loan, your existing bank may charge you a pre-payment penalty fee for transferring your loan. Check with your bank about the pre-payment penalty charges and make sure exactly how much you need to spend to close your loan.
–Compare benefits of reduced interest rates offered by the new bank: The new bank will charge you loan processing fees, legal charges, valuation fees, stamp duty, and other charges associated with the loan. Compare the benefits of reduced rates offered by the new bank after deduction of all loan processing charges and hidden charges.
–Read the fine print: This applies on both ends – from your current lender and the exit procedures, as well the new lender and the on-boarding process. “Many delays and inconveniences can be avoided by reading through the loan documents and ther associated literature, while being aware of conditions like the submission of notice to the current lender, confirming upon the new bank’s eligibility criteria etc. that could potentially cost time,” says Shetty.