Follow Us On :
Transferring your Home Loan? Beware of Transaction Costs


Transferring your Home Loan? Beware of Transaction Costs

  • By Saral Credit
  • November 12, 2021

Transferring a home loan is common in today's era, where multiple banks and non-banking firms are offering you low-interest rates and other benefits. In transferring the home loan, borrowers move their home loan from one bank to another for various reasons. Top reasons why borrowers consider switching their home loan to another bank include:

Low-Interest Rates: With a low-interest rate comes less EMI or lesser repayment tenure, which allure the customers. If your current lender has a high-interest rate and other banks are offering a lower rate on your home loan, it's a good idea to migrate to a new bank and avail the benefits of low-interest rates. With a low-interest rate, you will experience a low EMI burden and repay the entire amount within a short span.

Get a Better Deal: With increasing competition, multiple banks can provide you with some exciting deals w.r.t. your home loan. With better repayment terms, it's always a smart decision to switch your home loan. However, what deals you get with the new bank matters before decision-making.

Low Foreclosure and Prepayment Charges: Every bank has some foreclosure and prepayment charges associated with the home loan they provide. You should know these charges and decide to switch accordingly. If other banks offer you a home loan with lower foreclosure charges and smooth prepayment options, you should ultimately decide to switch your home loan amount.

Get Top-up Loans: Well, many of you don't know that your home loan comes with other associated benefits, and a top-up loan is one among them. A top-up loan is available at low-interest rates and easy repayment terms. This supports you in a monetary crisis to some extent. However, it's essential to know that every bank has different top-up loan terms and conditions, which you must know before making the right decision.

Pre Approved Offers: Some lenders also provide you additional benefits from time to time. Further, they can offer you some schemes or discounts on your home loan that can work for you to some extent. So, it is an excellent option to think of switching your home loan amount if you are getting amazing pre-approved benefits from a bank or non-banking firm.

Whenever you plan to buy a new house, you either have the full amount to pay upfront. However, in the current era, people more often prefer buying a house on EMI that lessens their financial burden and cuts the total house price into monthly installments.

However, the interest rate plays a significant role in selecting the right bank to get a home loan. You always struggle in the initial days to find or negotiate a home loan at a low-interest rate. Once you get your home loan, it works well for a few years until you plan to switch it (due to the reasons mentioned above). A home loan balance transfer is a hectic process for some borrowers as you need to continue searching for a bank that can offer you a low-interest rate or other associated benefits. The process of a home loan balance transfer is smooth and easy. However, one prominent point that most people won’t tell you is the transaction cost, i.e., additional charges that you have to pay for transferring the loan balance.

The loan transfer charges vary from one bank to another. However, some predefined charges are applied every time you transfer your home loan balance. Below are the transaction costs of transferring your home loan.

Foreclosure Charges: In case you have taken a home loan with a fixed interest rate, foreclosure charges will be applied to you by the existing bank. However, borrowers with floating interest rates are exempted from these charges.

Loan Transfer Processing Fees: Whenever you apply for a loan amount transfer, a processing fee is charged that starts with INR 10,000 up to 1% of the loan amount. However, banks can offer low processing fees or other offers from time to time that can lessen your processing fees and save your money to some extent.

Memorandum of Deposit of Title Deed (MODT): If you are living in Mumbai, Pune, Maharashtra, Chennai, Tamil Nadu, Bangalore, Karnataka, Hyderabad, Telangana, and Rajasthan, you have to pay a charge of 0.2% to 0.5% on the mortgage. Furthermore, you don’t need to pay the stamp duty in Delhi, Gurgaon (Haryana), Noida (Uttar Pradesh).

Incidental Charges: People living in Maharashtra have to pay incidental charges, e.g., SRO registration, etc.

It is interesting to know that not everyone is eligible to transfer their home loan balance. You should know the eligibility criteria before starting your search and finding a legit lender offering low-interest rates or other loan benefits. Here are the eligibility criteria that you must fulfill.

  • You must already own a home loan from another bank/lender.
  • You must have paid at least 6-12 EMIs to the existing home loan. However, in some cases, this tenure is waived off.
  • You shouldn’t have any default history in the past when repaying your home loan EMI
  • In case of under-construction property, the property must be verified again by the lender
  • In case of a ready-to-move house, registration must be completed.

Most home loan borrowers qualify for this eligibility; still, it's important to acknowledge them and ensure you fulfill all the criteria before putting your efforts into low home loan interest rates.

Points to Consider Before Loan Balance Transfer

Shortlisting a bank/lender doesn’t mean you should proceed further and start the transfer process. You already have solid reasons for migrating your home loan amount to another lender. Below are five crucial points that you must consider before proceeding with the home loan balance transfer.

Negotiate for a Better Rate of Interest: If you have a loyal relationship with the existing bank, there are cases when you don’t need to switch your existing home loan. Instead, you can simply negotiate with the current bank and show your interest in continuing your home loan with them. In return, share your expectations for low-interest rates. More often, your request is approved with a small one-time payment to lower your interest rate.

Look for the Lender with Expected Interest Rate: You are investing your time and money (transaction cost) in migrating your home loan balance to a new bank. So, it's essential to negotiate with the bank/lender and conclude a lower interest rate that fits your expectations.

Check Your Credit Score: Yes! Your credit history matters a lot when switching your existing home loan to a new bank. The lender always checks whether you have the potential to repay the EMIs regularly (without delay). Borrowers with a good CIBIL score are welcomed at priority to switch their home loan balance.

Check Transactional Costs: As mentioned earlier, different banks have different transactional charges involved when switching your home loan. You should know the charges of existing and new banks. Ensure the new lender doesn't have hidden charges applied once the transfer process is done from your existing bank.

For first-time readers, there is one more loan type that you should know, i.e., repo-linked Loan. As the name suggests, repo-linked home loans experience fluctuations based on RBI relaxations. As RBI lowers/increases the repo rate, your existing bank will make the exact changes in your home loan interest rate. If you currently own a repo-linked home loan, there are some points that you should always keep in mind.

Read T&C Carefully: Before you make your selection for a repo-linked home loan, it's crucial to read the terms and conditions thoroughly and understand the way it works. Reading the T&C will also help you omit hidden charges.

Take Expert Advice: Obviously, everyone won’t have detailed knowledge about the home loan and how to transfer the loan balance easily. Hence, you should always take suggestions/recommendations from an expert.

How to Apply for Loan Balance Transfer?

Now you understand every charge and motive behind transferring your home loan balance, it's time to discuss how you can apply for the loan balance transfer.

  • Visit the website of the concerned bank.
  • Check the option of home loan balance transfer along with its current interest rates and processing fees.
  • Don’t miss reading the terms and conditions before applying for a home loan balance transfer.
  • Once you are satisfied with everything, fill the form provided and submit the required information (including your personal details, property details, loan details, etc.)
  • Once the form filling task is done, you will get an estimated loan offer.
  • If required, you can pay the initial fees and submit (upload) documents for further processing.
  • Once everything is done, you can wait for the approval and completion of the loan transfer process.

Currently, the home loan is available with interest rates as low as 6.4%.

Remember, transferring your home loan balance is always a profitable affair, but it comes with numerous other factors that you shouldn’t miss when taking this step. With that said, you are now educated enough to take the right decision w.r.t. your existing home loan balance.