Weigh the Pros and Cons Before You Transfer Your Home Loan
Are you thinking of transferring your home loan to some other bank or non-banking financial institution? Well, if you ask us whether or not you should go ahead with your decision, we will say two contradictory statements:
- We are in favor of transferring home loan.
- We are against transferring of home loan.
Sounds crazy right? Allow us to explain! Whether we favor or whether we oppose entirely depends on the situation in hand. There are a few things you need consider before you actually move ahead. It is very necessary to evaluate the pros and cons of transferring your home loan from one provider to another because there may be instances when the benefits are far outweighed by the costs of such transfers. You don’t want to end up with loses, do you?
So, let us take a look at all the aspects that you need to consider before you decide to transfer your home loan:
Biggest Con: The transfer route will take you for a bumpy ride!
If you have been nurturing the notion that all you have to do is just apply for transfer, sit back and relax while sipping on a cup of relaxing brew of coffee, you are wrong! Home loan transfers are really bumpy rides. They are pretty much like a whole new application for a completely new loan. The whole process that you went through for applying in the first place will be repeated. And let us remind you. It is a process involving meticulous details. Your transfer application will be considered as a new loan application by your lender. Again, there is absolutely no guarantee that you application will be approved. How is more likely to reject your application? It is not your old lender but the new lender.
The new lender may have stricter process of approval in place. For instance, SBI is extremely strict about the documents required as compared to Tata Capital or perhaps DHFL. So, if the new lender finds the documents insufficient (which were more than sufficient for your existing lender), the new lender will simply reject the transfer request. Thus, you need to first check out the eligibility conditions of the lender where you want to move.
It’s a Con if the interest rate difference is not greater that or at least equal to 2%
So, assuming that you have all necessary documents that are demanded by the new lender and that your transfer application will be happily accepted, there is absolutely no reason why you should dive in right away. Wait and consider this – is the interest rate offered by the new lender less than what you are already paying to your existing lender by at least 2%?
Let us put this numerically:
You currently home loan is with lender A, who is charging you, say 11.75% annual interest.
Is the new lender offering an interest rate of 9.75% or less?
No? Well then! Your transfer is eventually not going to save you any money. It will rather be a costly affair because of the huge transfer costs associated with home loan transfers. You better not transfer your home loan. Stick to your old one.
How long before you are out of debt?
You, I and everyone else knows what a debt is. It is just a synonym for stress and tension. So, a home loan gives you stress. If you are almost towards the end of getting rid of this stress, do not bother to transfer your home loan. The golden rule of thumb is to ensure that you opt for transfer only if the remaining repayment period is more than 5 years. Because, if the repayment period left is 5 years or less than that, the cost of transfer will nullify the eventual benefit of transferring the loan.
Home loan transfer cost can be a con!
Not every lender is friendly. Most of them are profit making organizations. They aren’t sitting out there to do some charity for troubled souls like you. The moment you apply for transfer, you will be bombarded with a host of fees for the transfer. The two most common costs are stamp duty and processing fee. Some may even charge you prepayment penalty. These costs can eventually add up to lakhs depending on the loan amount and interest rates applied. So, be careful.
Negotiate with your existing lender – this can turn into an advantage!
Believe it. No lender will be happy to let go its customers. It is a loss for them because transferring a loan costs a lot in different forms. There is administrative cost, there is time cost and there is opportunity cost. All these can culminate into massive losses for the lender. So, once you pitch that you want to transfer your loan to some other lender, the existing lender will assign a manager who will try to talk you into staying. You can negotiate. You can literally ask for interest rates revision. Good thing, lenders often agree but with a small clause. They will reduce the interest rate to a more comfortable one but will charge a conversion fee on the remaining amount due. This will save a lot of hassle both for you and your lender. Usually conversion fee ranges between 0.5% and 1% of remaining due amount but is eventually cheaper than the transfer cost. So, open up and talk. Talking is not always annoying. It helps at times.
So, whether or not you must opt for transferring your home loan is dependent on several factors that you should consider in details before you make any hasty decision. A wrong step will cost you money and as double whammy, you get a payload of troubles. Do you really want that? Transfer your home loan only and only if it is beneficial in the long run. Else, just stay put and continue with your existing arrangements in order to steer clear of troubles and losses.