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Dhruv availed a home loan from a tech-savvy bank for 15 years some five years back and he was very regular in repaying his regular EMIs. Due to technological advantages provided by the exiting lender, he never felt a need to visit his bank.
One day he met with his banker friend who casually asked what rate of interest is being charged on his home loan, he was unaware, but he informed since his EMIs are same, he presumably understands that the rate of interest would be the same as it was sanctioned originally.
On the advice of his friend, he visited the bank and found that the loan period is extended and he needs to pay 28 EMIs more due to increase in the rate of interest in his home loan. He was shocked that he paid a higher rate of interest than the rate being offered by many other banks.
Following the guidance of his friend, he shifted his home loan to another bank with a lower rate of interest and made a promise to himself to be in touch with the bank till the end of his home loan.
It is always advisable to keep a tab on the rate of interest being charged and if the need is felt, there should not be any hesitation to shift home loan balance with another lender, shifting of home loan balance is also known as takeover.
Home loan takeover is an option that allows a home loan borrower to take benefit from a downward movement in lending rates. Lending rates often change with the market condition. The process of transferring of home loan is very simple and it is completed in a few steps.
As a first step, compare the interest rate of current home loan to the interest rate of new financing. For instance, if existing loan is a 25-year, flexi-rate loan, compare the interest rate to the rate of a new 25-year, fixed-rate loan. One should always consider the processing fees, legal charges, valuation fees, stamp duty and other charges which a new bank is going to charge. Then accordingly, compare it with the benefit of reduced interest rate. The cost of taking over should exceed any benefit you can get from a lower rate.
NOC for existing lender
A list of documents relating to the properties is to be obtained before applying for takeover along with the foreclosure letter the existing lender is to give you as a written estimate of all closing costs and no objection certificate to release the mortgage in favour of the new lending bank.
The preferred bank
The bank, where home loan is being transferred will treat the loan as fresh and one has to follow all the procedures again. It will include credit appraisals, legal verification of title credentials and also the valuation of property by the new bank, etc.
Home loan transfer is only possible when the borrower is regular in repayments to the current bank. One should not always be attracted to interest rate which is lower than existing ones, always check the terms and conditions. Of late, the home loan transfer has been most lucrative when the teaser loan scheme hits the market. One should always keep in mind that the teaser rate is for a limited time frame and will adjust after that time.
Ranjeet Gautam – Banking Expert
Times Property, The Times of India, Ahmedabad