Want To Transfer Your Home Loan? Here's Everything You Should Know
Are you looking for ways to lower your home loan EMIs or equated monthly instalment? If yes, then you can transfer your home loan to a different lender. Transfer of home loans generally is done when a change in the rate of interest, tenure of the repayment, and enhanced loan facility on existing property is required, say experts. A borrower can use a loan transfer to lower his or her monthly liabilities in terms of EMI outgo. But how does this work?
For instance, a person takes a loan of Rs 20 lakh at a rate of 11 per cent for a 10-year tenure. The rate of interest varies from person to person depending on factors such as source of income. After that, if one finds a more suitable bank, offering a lower rate at 8.5 per cent, for a 10-year monthly instalments, one can save as much as Rs 3.30 lakh for the entire duration. (see table)
Individuals often prefer transferring home loans even with a minor reduction in interest rates because the amount involved is big and the repayment tenure is long, which therefore results in significant savings, say experts.
| Loan- 20 lakh | Tenure-10 year | Original rate: 11% |
|---|---|---|
| Rate of Interest | EMI (rounded off) | Total Interest for duration |
| 11% | 27,550 | 13,06,000 |
| 8.50% | 24,800 | 9,76,000 |
| Difference | 2,750 | 3,30,000 |
However, in certain circumstances it is not advisable to shift home loans, they add.
"Transfer of home loan also entails additional cost in relation to legal documents, processing charges, some incidence of stamp duty (mortgage charges) etc and this are all to be paid upfront plus whatever was paid on original loan will not be refunded. So, if the total quantum of interest (on present value basis) saved is not greater than the outflow towards shifting of loan, it is not advisable to shift the home loan," says Sandeep Shah, partner, N.A. Shah Associates LLP.
"However, when it comes to extending the duration of repayment or some moratorium (deferment of instalments), the absolute saving in interest may not be relevant as the consideration is ability to pay the instalments."
When you shift your home loans your existing lender might also offer with counter rates, explains Mr Shah. If the borrower has never defaulted on loan, the quantum of loan of reasonable size with loan-to-market value of property ratio being low (i.e loan amount borrowed is less resulting in higher security for the bank) etc, the institution will always make a counter offer, he says.
There are various factors, which institutions take into account before processing the transfer of a loan. Age, size of family, source of income, marital status, stability of employment, CIBIL score, loan-to-market value, quality of guarantor, age of building/locality/ developer repute (from the angle of real estate prices going forward), regularity of filing of tax returns are few of them. "Social media comments on the borrower is also reviewed by the lending agency," says Mr Shah.
