Before you decide on to transfer your home loan to another bank, here are the six things you must consider:
“You will transfer your home equity loan from the other bank to our bank and not solely save on interest however additionally avail a better loan amount” is that the pitch from one in all well-known banks. Most people would undoubtedly be tempted to travel certain such a transfer. And why shouldn’t we? For the double benefit that is being provided, why would anybody not avail such an opportunity and that too when interest rates are so high? But stop and think. Is it all so simple? Should I go a step ahead to find the details? The answer is “yes, you should” and here is WHY and WHAT you should look at.
Technically called “loan takeover”, transferring a loan to another bank means approaching a bank and asking it to issue a loan amount that is the outstanding amount with the current bank, repaying to the current bank and continuing the loan with the new bank. You will benefit from the lower interest rates or lower EMIs. And the bank? It gains new business. But, is the interest rate or a lesser EMI the only consideration? Not really. Here are six important factors that help you take the final decisions:
Although the new bank tries to attract you by reducing your monthly EMI and giving you a longer span to repay (increasing your tenure), you should be clear that such facilities increase the total amount you pay to the bank because the interest keeps on adding to the outstanding loan amount. If you are paying higher EMIs with your current bank, compare the total outgo for both banks and then take a decision. If you are not hard-pressed for cash, you should prefer staying with your bank, pay a larger EMI and finish off your loan as soon as possible to save all the money you would overpay, by opting for a longer tenure.
Take into consideration the processing fee, stamp duty, legal charges, valuation fee, technical charges and other allied charges that your new bank would charge and compare it with the benefit in terms of reduced interest rates. Is there a net benefit or a net loss?
For some banks, processing fee is a percentage of the total loan amount, while for others, it depends upon whether you are salaried or run a business. Still others have a fixed amount, uniform for all. If the bank calculates it on the basis of the outstanding amount, calculate it in rupee terms to find the cost. Also, your existing bank may jack up the costs of closure of accounts if it finds out that yours is a case of takeover. One of the complainants in an online complaint forum talks about how the bank officials refused his request to charge the interest rate on floating basis and insisted for recovery on a fixed rate of interest if the customer opted for takeover. They wanted the customer to pay at fixed interest rates, much higher than the floating rates applicable.
If you have already repaid a huge chunk of your loan, do not offer the complete original collateral to your new bank. Why would you want to give a security which is double the amount of your loan outstanding? You would use it to take a separate loan instead, if the need arises. Offer your new bank a lesser amount of collateral. And if the bank still insists on the same, negotiate for lessening the interest rate further.
When you take a loan, banks generally require you to open a savings account and route your money through that account. In case it does so, find out the charges applied, and the facilities provided to you. For example, a Canara Bank education loan account does not accept EMIs through net banking. HDFC net banking allows you to make NEFT only 24-hours after you have submitted the request, the first time.
You should consider such provisions and your requirements before taking the final decision. Also, if your current bank is the one where you do all your banking, you become a premium customer for them; know a lot of their staff, are well-versed with their processes and may also be given services faster than others in queue. These softer aspects go a long way for ease of use and comfort banking and should be thought about before foregoing them.
Before signing on the dotted line, you MUST read all terms and conditions of both banks. Some banks include buying insurance from specific company or depositing a certain amount in fixed deposits or opening a number of saving accounts for self as well as family, etc. Read the “terms and conditions” part of the sanction letter and understand the pros and cons of such conditions.
Do not fall for an interest rate, or benefit, that is only marginally better. After all banks are into the business of lending. Why would one want to give you loans at a lower interest rate and lose profits when others in the market are earning a higher rate of interest? In your best interest, it is good to be suspicious and ask and consider all the issues mentioned above.