House loans are availed by most of us from nationalized and private banks to give us financial assistance when we buy a new house. One has a lot of options to choose on suitable banks and affordable payback interest rates. The entire process of getting a home loan sanctioned also has quite a lot of documentation to cater. Once an agreement is reached with the bank on their loan interest rates and standard equal monthly instalments (EMI) options are worked out. The process of EMI starts from here. Over a period of time, aligned to the growth of realty sector, the bank rates may come down and lucrative offers from competitive banks may be made available to you. So what happens now? In case you are interested, How does one transfer the loan from the current bank to another bank?
Overall, anyone may transfer the loan to a new bank due to any one of the following reasons:
- The interest rates offered by the current bank are too high compared to other banks (this may be the case when one predominantly goes for a floating rate of interest)
- The current bank offers a different and a lesser interest rate for new customers and is not willing to reduce your loan interest rate.
- The EMI‘s are huge every month .i.e., a customer may want to increase the overall loan tenure so that the EMI every month is reduced and causes less burden in maintaining his months finances.
- Poor customer service offered by the current bank.
Before you transfer your home loan from one bank to another bank, there are few things that are to be taken into account.
Is the Transfer Transaction Really Profitable?
When you decide to transfer your loan amount, calculate whether the move really benefits you. Check whether the new bank offers comparatively low interest rates. Additionally, verify whether the new bank has increased its loan rates in the past. If so, there is a huge possibility that the new bank might increase the loan interest rates in future for you.
Sometimes the new bank might attract you by allowing you to pay smaller EMIs for a long period. Though the EMIs are less per month, you will be paying a lot more than the original as the tenure is longer. Also the move is profitable only when you transfer the loan amount very early in the tenure. Once you are midway with loan in the current bank and then you make a transfer, then it is a loss for you as you would have repaid most of the interest on the principal amount. Transferring to another bank may subject you to pay interest from the start.
Another key aspect is to consider is that if you are valued customer to the old bank as all your past transactions are with the old bank, you may be given priority and good service .You may even know few employees in the bank who can help you when you have some problems related to your bank account and its transactions. These services cannot be expected from the new bank immediately.
The new bank can levy service charges such as processing fee, stamp duty, legal charges, valuation fee, technical charges and other allied charges. Compare these charges against the low-loan rates and calculate whether it is profitable for you to make a shift. Some banks charge their services based on the loan amount borrowed .i.e. a percentage of the amount borrowed ranging from 0.5% to 1.5% depending on the specific bank from where the loan is taken.
Few banks keep these charges fixed for all customers irrespective of the amount borrowed. Sometimes the old bank can charge you a certain amount for closing the loan before the specified tenure (certain private banks do it).
You must get a NOC from the current bank and also a statement regarding the outstanding amount on your loan to be repaid. The documents obtained needs to be submitted to the new bank. A fresh round of credit evaluation, legal verification of property, your statement of income, proof of residence etc. will be carried out by the new bank as a part of the loan application procedure.
Once the background work is done, the new bank will transfer the outstanding funds to the old bank and in return the old bank hands over the property documents to the new bank.
Never Omit Reading the Terms and Conditions
It is very important to read the terms and conditions provided by the new bank. Some banks may impose few conditions like you must open a savings account or have a fixed deposit in their bank in order to process your loan. Few banks even insist you to have all your family members to open an account in their bank .So be mindful about these terms and conditions before you wish to transfer the loan.
Do Not Fall for Marketing Gimmicks
Some banks may brainwash by telling you that they offer free credit cards for those you obtain a loan from the bank. You may be happy to receive a free credit card but the shock comes later after a year or so when you may realise that the credit card is free only for a specific period and after that it will be charged an annual fee.
Overall, the procedure to transfer an existing loan from your current bank to a new bank is cumbersome and a tedious process. One has to weigh the benefit of transfer vis-a-vis closure charges to his/her existing loan. Lastly, the decision to transfer an existing loan to a new banking institution has to be viewed with a long term perspective to realise gains.