Transferring Your Loan To Another Bank? Here Is How To Make The Most Of It
Home loans that are linked to a floating rate of interest do not provide the borrower the surety which comes along with a loan that has a fixed rate of interest. However, because of their ever-changing structure, floating interest rates also help a borrower make the most of an opportunity in case it presents itself. That opportunity, as a matter of fact, is standing right in front of you today. Interest rates have fallen to a great extent ─ between November 2016 and June 2017, banks reduced the one-year marginal cost of funds-based lending rates (MCLR) by a cumulative 77 basis points (bps). This makes a perfect case for you to switch to another lender offering home loans at lower interest rates.
However, do keep in mind the points listed below to make sure the balance transfer turns to your benefit.
- The new lender will charge a processing fee to grant you the loan. They could either charge a flat fee or 0.25-1 per cent of the outstanding loan amount as processing fee from a customer. It will also treat you as a new customer which means you will have to carry out all the paperwork that you did for the first time. Additionally, you will have to pay for the legal and technical assessment of the property that the new lender would carry out. This new lender may also ask for an administration fee. Make sure all this effort and payment is worth the benefit.
Quick tip: It may be a good idea to stick with your existing lender till the time rates touch a level where balance transfer would actually be beneficial for you.
- In case you had taken a home loan at a fixed rate of interest only to realise later that the rate is not really “fixed”, you could opt for balance transfer and switch to a floating rate of interest. However, if you have already repaid a large part of your loan, the switch may not be a good idea.
Quick tip: Banks do not charge a pre-payment penalty if you loan is linked to a floating rate. The same is not true of the loans that come with a fixed rate of interest.
- In case you are one of those customers who will have to pay a penalty on balance transfer, keep in mind the fact that the charges will be higher in case you try to call it quits with your existing lender in the initial years. The longer you stay with your previous lender, the lower the penalty to say goodbye.
Quick tip: Judiciously choose the time to switch lenders. The amount spent in paying a penalty may deteriorate your profit margins.
While you are at it
- Thoroughly read the terms and conditions with which a lower rate of interest is being offered.
- The new lender may ask you to buy additional products — home loan insurance, for instance — to transfer the loan. Do note that it is not mandatory to do so.
- Do not sever ties with your existing lender before making sure the new lender is serious about funding your property.
- If you are a valued customer, your existing banks may ease norms for you and offer lower rates and would not let you go. However, this method should not be used as an instrument to manipulate.