The majority of people dream of becoming homeowners, but to be a homeowner most people need financial aid in the form of home loans. The interest rates on your existing loans might be too high compared to current market rates. This is where the idea of transferring home loans can benefit the potential homebuyers. As a result, homeowners find it possible to switch lenders with better terms. This guide will talk about home loan transfer and how to make the switch as easily as possible.
What is a Loan Transfer?
The term loan transfer or balance transfer means transferring the existing home loan from one lender to another. This option is largely adopted by the borrowers when they discover better interest rates available, lower EMI or better service with a new lender. The benefits of a loan transfer are mainly to save on interest costs across the term of the loan.
Why One Should Consider a Loan Transfer?
There are several reasons why transferring your home loan to a different bank or lender can be beneficial.
Lower Interest Rates: The key reason people go for a loan transfer is to get a lower interest rate. Thus, lowering your monthly EMIs and overall interest paid.
Improved Loan Terms: Lenders across the board can offer more flexible repayment options, but that includes an extended loan tenure or reduced fees.
Better Service: If you hate how your current bank’s customer support, then you may want to move to a bank that offers better services.
Top-Up Loan Facility: When you transfer to some banks, they may offer you an extra home loan on your home loan.
How Does the Loan Transfer Process Work?
Transferring your home loan is a simple but not a quick process. Here’s a step-by-step guide:
Check Your Current Loan Status: Before deciding to transfer, one must ensure that the outstanding loan balance, loan term, and foreclosure or prepayment charge as well.
Research and Compare Offers: Compare the interest rates and terms your current lender has with other lenders looking for. Look at both public and private banks and all non-banking financial companies (NBFCs).
Apply to the New Lender: After you select a lender, fill out the transfer application (needed documents are your loan repayment document, salary check, and identity proof).
Approval from the New Lender: After the transfer, the new lender will analyse your financial health, repayment capacity and value of the property before approving the transfer.
Approval from Current Lender: When the new lender approves the loan transfer, it will need a No Objection Certificate (NOC) and a foreclosure letter from your current lender.
Transfer of the Loan: The new lender will repay your existing loan to your current lender and the balance remaining will be debited to the new lender.
Factors to consider when Transferring your Home Loan
With a home loan, transferring seems like an easy way to save money but it’s not without its pros and cons.
Processing Fees: Transferring a home loan from one bank to another will cost a processing fee. It could be a fraction or percentage of the loan amount. Make sure that the cost of this is not more than the value of the lower interest rate.
Foreclosure Charges: Find out whether there are any foreclosure charges on your current lender. Banks also charge a fee if you pay back your loan before the agreed period.
Remaining Loan Tenure: Transferring a loan in the first few years of a loan makes sense. Savings may not be worth it if you’re near the end of your loan tenure.
Loan Transfer Legal Aspects
When you are transferring a home loan, the legal process is the transfer of the mortgage deed from your old lender to your new lender. In some cases, this means creating an equitable mortgage where the lender holds the property documents as security until the loan is repaid. The term commonly used is a mortgage by deposit of title deeds.
According to the Equitable Mortgage Transfer of Property Act, the rights of ownership can be legally transferred to the new one. This act governs the process of transferring the property, including equitable mortgages, both for mortgage acts and loan transfers. If you transfer your home loan, then your new lender will step into the role of the previous lender under property rights and the mortgage deed.
Conclusion
A home loan transfer can come with some great financial benefits, but it’s not a decision to make on the spur of the moment. Switching lenders can be exciting, carefully evaluate the new lender’s terms, fees, and, overall, service before making the switch. Beyond that, also make sure the legal aspects are taken care of properly.
