Monday, 3 August 2015

Switching Home Loans

If as a buyer you are having problems in repayment of home loans, there are options of exploring other financial institutions offering loans at a lower rate of interest, there are multiple benefits of switching your home loan. When banks or any other financial institutions reduce interest rates, people applying for home loans are benefited;old debtors are only benefited when they switch their loans to different financial institutions.

However if you have taken a home loan from a particular bank and want to switch it to a different bank, do it carefully. One major benefit of switching your loan from your existing bank to a different one is that there is a reduction of EMI’s to be paid to the bank, secondly the EMI stays stable and the duration of the loan amount to be paid is also shortened.
Many buyers who change their home loans from one bank to another do it because they want to change their payment option from fixed to floating and vice-versa. Buyers previously having fixed rate of interest change their home loans to floating rate if they feel that Reserve Bank of India could reduce the interest in the future and they can benefit from this move, similarly if they feel that the interest rate could climbhigher they move from floating rate to fixed rate of interest.

Whenever buyers switch their home loans from one bank to another there is a onetime fee that needs to be paid, usually it is 1% to 1.5% of the total loan amount, in some cases banks already have a fixed amount in place that needs to be paid. When your present bank transfers the loan to a different bank there is a possibility that they take a conversion charge from you, it could be 1% to 2% percent of the remaining amount, so switch your home loans after careful consideration of these facts.

The right time to switch your home loans when you can get maximum benefit is in the initial years of your repayment, when your loan is on the verge of ending and the actual amount is more and interest is less there is no point in switching loans then, as you will not get any benefit out of it. Another way of saving money is that you switch your home loan when there is still 8 to 10 years left for repayment or when there is a difference of at least 1% between your existing rate of interest and the new rate of interest.

What is the right way of switching home loans?

·         Whenever you are planning to switch your loan, inform your bank and mention the reasons of you doing so.
·         Get a consent letter or a no objection certificate from the bank.
·         All the necessary documents like account statement, foreclosure statement and other property related documents will be required at the time of loan transfer.
·         When you transfer the loan amount to a new bank all the steps that were taken during the approval s the first time will be applied again.
·         For this you will require personal identity card, pan card, statement from the previous bank, address proof, one copy of the property tittle deed, salary slip, and a copy of income tax return will be required.
·         The bank you are switching your loan after inspecting your documents and being satisfied approves your home loan.

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