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Switching Your Housing Loan: Some Tips
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For a while now, I have been toying with the idea of shifting my home loan to another bank or housing finance company. While the service is great, the interest rates have become pretty high.
I am on a floating rate scheme so if there are any changes in the rate, my bank loses no time in applying the new rates. Unfortunately, over the last few years, there have been a series of hikes (in interest rates) and now I am feeling the pinch of the higher interest.
I am sure many of you must be in a similar predicament. In case you are planning on a shift, here are some things that you need to watch out for.
1. First of all, why are you shifting? The most common reason is rising interest rates. Another major reason for a shift may be bad service by your existing financial institution. If higher interest is the prime motivating factor for you, consider whether a shift will give you significant savings.
2. Shop around for rates offered by rival banks and institutions in the sector. Do a careful comparison of the rates including the reset frequency – how frequently they review the interest rates. Along with the rates, also look at the terms and conditions including a prepayment penalty. In fact, the Reserve Bank of India has sent strict instructions to banks that no penalty should be levied on prepayment of any retail loan, including housing loan. Check if the finance company or bank you plan to shift to, is thinking of raising its interest rates in the near future. If that is the case then your whole purpose of shifting to lower rates will be defeated.
3. It is quite possible that you can discuss your situation with your existing lender and negotiate for a lower rate. Housing finance companies usually do not like to lose customers, especially those with a good credit record. Therefore, if you find another lender, which is offering a substantially lower rate, you can persuade your current institution to offer the same rate to you. All this works on a case-to-case basis and depends on how you state your case. Get your lender to understand your difficulties and if it is worth their while, they may be amenable to shifting you to a lower interest rate regime.
4. Whether a bank or finance company will accept you as a customer depends to a very great extent on your credit history and how regular you have been in making your loan repayments. It should also be beneficial to them to take on your loan. In the case of under-construction projects, banks will look at the builder’s reputation and if they are adhering to the schedule. How early in your tenure you are shifting your loan is also a factor to be considered.
5. Shifting your housing loan from one company to another involves some amount of paperwork. You have to first get a NoC (No Objection Certificate) from your existing lender, along with a letter, which clearly states your outstanding principal amount. These have been to submitted to your new lender who will then conduct a due diligence of your, which may include a visit to your house. If your property is still under construction then the project must be among the list of approved projects by the lender. Once it is satisfied about your bona fides then it will hand over the amount (your remaining principal) to your old lender, which will in turn transfer the ownership papers to it.
The fees that may be incurred are processing fees, legal charges, validation fees, stamp duty etc. Your new lender will absorb most of these costs.
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