A home loan makes it simple for a person to achieve their desire to own a house.
Today, obtaining a home loan is not that difficult; provided you meet the conditions, you may contact any bank to obtain financing for the purchase of a property.
Although there are advantages to home loans, such as tax exemption and liquidity, we cannot ignore the fact that these loans typically have long terms of 20 to 30 years. We must pay the interest amount during these years in addition to repaying the principal.
Since we’re talking about interest, it goes without saying that various banks and NBFCs provide various interest rates. And because of the adaptability of our banking system, borrowers who believe they are paying their existing bank a high EMI (Equal Monthly Installments) and high interest rate may think about moving their house loan to a different institution.
However, many consumers mistakenly believe that the decision to refinance the mortgage is only based on the interest rate, but this is not how it works. Before transferring the mortgages, the borrower must take into account a number of additional variables, which are described as follows:
Determine The Total Amount of Interest Paid :
Although the new bank makes an effort to entice you by lowering your monthly EMI and extending the time you have to repay (raising your tenure), you should be aware that these features raise the total amount you pay to the bank because the interest keeps accruing to the outstanding loan amount. Compare the overall expenditures for the two banks before making a decision if you are paying greater EMIs to your existing bank. If you don’t need the money right now, it’s best to stick with your bank, pay a higher EMI, and pay off your loan as quickly as you can to avoid paying more than necessary by choosing a longer duration.
Check Out Current Credit Score :
A credit score is an important consideration when applying for a loan. Your credit score will influence whether you are qualified to transfer the loan or not when doing so. Your creditworthiness will always be evaluated by a potential lender using your credit score in conjunction with other variables. You will be less likely to receive the transfer if you have been erratic with your credit card and EMI payments. Therefore, to ensure a high credit score, make sure to pay all of your credit card payments and EMIs on time.
Examine The Processing Costs and Related Expenses :
Compare the processing cost, stamp duty, legal fees, valuation fees, technical fees, and other allied expenses that your new bank will impose with the benefit of lower interest rates. Whether there is a gain or a loss on the whole.
Processing fees vary depending on whether you are employed as a salaried employee or own your own business for some banks and are calculated as a percentage of the entire loan amount. Others have a set amount that is the same for everyone. Calculate it in rupees to determine the cost if the bank bases its calculation on the amount that is still owed. Additionally, if your current bank learns that you are the victim of a takeover, it may raise the fees associated with closing accounts. One of the complainants in an internet complaint forum describes how bank representatives rejected his request to recover the interest at a floating rate of interest if the customer chose takeover instead insisting on recovery at a fixed rate of interest. They desired that the customer pay at fixed interest rates, which were far more than the appropriate floating rates.
Pay Close Attention to The Loan’s Collateral to Outstanding Ratio :
If you have previously paid back a sizable amount of debt to your existing lender for more than 8 or 9 years, it is not a logical choice to give them your initial collateral. The original collateral has far more value than the balance still owed, thus there is no reason to provide security for a sum that is twice as large as your loan balance. If this is the case, propose less collateral to your new bank, and if they reject your offer, ask them to reduce the interest rate even further.
If Your Tenure is Five Years or Less, Stay Put :
It is not a smart financial move to transfer your home loan if the term is set to expire within the next five years. Due to the fact that you would already have paid the lender the higher interest component of the loan, as well as having to pay the loan processing fee and other extraneous costs once more when switching lenders. According to experts, if a borrower is still inside the first four to five years of their mortgage, they should convert to a different type of loan because the initial interest rate will be lower and the switch will be more advantageous.
Allied Account Criteria Costs and Advantages :
Banks typically require you to open a savings account and transfer your funds through that account when you apply for a loan. Find out the fees charged and the services offered to you if that happens. For instance, EMI payments made through net banking are not accepted for Canara Bank education loan accounts. You can only make NEFT transactions using HDFC Net Banking 24 hours after you first submit your request.
Before making a final choice, you should take these provisions and your needs into account. You also become a premium customer for your present bank if you only conduct your banking there. As a result, you are likely to receive services faster than other customers in line because you are familiar with many of their employees and are knowledgeable about their procedures. Before skipping over them, consider how much of a difference these softer features make to banking convenience and comfort.
Read the Terms & Conditions Thoroughly :
Last but not least, before you continue with the transfer process, carefully examine the terms and conditions of the new lender. Check to see if the new bank/NBFCs isn’t pressing you to take out a second loan in addition to another product, and make sure they aren’t offering insurance without your knowledge. Verify the loan advantages, top-ups, and other services the new bank has to offer.
Takeaway :
Loan transfers are not particularly challenging, but it doesn’t imply you should ignore them entirely. If the interest rate is the only factor motivating your choice to transfer, try to come to an agreement with your existing lender before you decide. If they are amenable to negotiation, your decision can be put on hold; if not, move forward. Avoid being seduced by cheap interest rates and other offers; instead, carefully read the terms and conditions and consider the suggestions above before making a choice.
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