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The following are the points to be noted before doing Home Loan Balance Transfer.
1) Reason to transfer
Most borrowers shift their home loans from one lender to another because of a significant difference between the rate that their bank/housing finance company is charging its old customers compared to the one being levied on the new customers.
A difference in rates might also arise between your lender and others. If significant savings can be made, a shift is advisable. If a customer finds it difficult to pay the EMI, he may want the lender to increase the tenure to reduce the installment. If the current lender refuses, the customer can shift to another. Poor service standards also warrant a shift.
2) Check the rate
Make sure that the bank to which you plan to shift has already increased its rates in the current wave of hikes. The move will be futile if you shift to another bank and it raises the rates soon after. Transfer only if there is a significant difference, at least 50 basis points, in the interest charged by your current bank and that offered by the new one.
3) Negotiate with lender
If there is a huge difference between the rate you are paying and the one being charged from new customers, try to negotiate with the current lender. Many times, banks agree to lower their loan rates because they don’t want to lose customers. Banks also offer the conversion option, wherein you pay a fee ranging from 0.5-1.5% and shift to the lower rate (charged from new customers). At this point, it is important to do a cost comparison between.
4) New lender’s conditions
Whether the new bank accepts your loan request depends on a host of factors, the most important being your repayment record with the previous lender. If it has been patchy, that is, you have been late in paying a few EMIs, your request could be turned down.
5) Procedure and Charges
Get a no-objection certificate from your existing bank. Also, obtain a document listing the outstanding principal on your loan. Submit these to the new lender, which will exercise due diligence as it does for new customers – credit evaluation, legal verification of property, and so on.
Once the paperwork at the new bank is complete, it will hand over the outstanding principal to your old lender. The latter, in return, will hand over the ownership papers to the new lender. Besides the processing fee (which may be waived), there are some other costs involved in transferring a home loan, including legal charges, valuation fees, stamp duty, etc.