Looking to Switch to a Cheaper Home Loan? Look Closer

It’s commonplace to refer to new home loans in the market just to understand and cross-check if you’ve currently got a good deal on yours. Switching to a new home loan while maintaining the same EMI but a lower rate of interest can reduce tenure of payment. If you are stuck at a high rate of interest, moving to a new home loan could be the perfect option for you. However, switching to a more attractive offer might not be possible because of several reasons:

• Lending norms have changed significantly over the past few years: Banks and NBFC’s are under strict instructions to reduce funding percentage so if you have borrowed 85-90% of the property cost earlier, switching to a loan where 75-80% is allowed will pose a problem. A loan with higher percentage funding could be a major disadvantage.
• Fluctuating real estate prices: If your property is under-construction the market value might have shot up and the 85% funding that you had received stands to be 75% or lesser now! The property will be of no consequence to the new lender unless you have received possession. So, you will fall short if they consider the ‘agreement value’ to take over your loan which is true of most cases.
• Irregular repayment: It goes without saying that if you have a bad track record with your previous lender it won’t help your case. Never mind the reasons for late repayment like change of address or any disputes.
• You are under a fixed rate loan: One isn’t aware that pre-closure penalty ranging from 2-4% and service tax levied by lenders is waived off for home loans however it isn’t applicable for fixed rate loans.
• You have laminated your property’s registered deed: Unfortunately, this could go against you as lenders do not accept laminated deeds for mortgage.
• You have a guarantor in your loan: Having a guarantor could ruin your chances of switching to a new loan as he/she might not oblige again or the new lender may not have a policy of accepting a guarantor.
• You have obtained funding on stamp duty and registration charges: Funding on statutory charges like stamp fee and registration duty isn’t allowed by the RBI anymore and banks might stay away from taking over loans where these costs have been considered.
• The timing is wrong: Switching in the initial years of your home loan will ensure that you get a better deal as you pay higher amount towards the principal part at the end of the loan.
• Change in profession: If your professional status changes from ‘employed’ to ‘self-employed’ then lenders will require at least three years of business community proof and the absence of a regular monthly income could severely hinder your chances of getting a new loan.
• Loss of the original deed: Although a rare occurrence, not having the original deed is a no for most lenders and they might refuse to take your loan on board. 
  Low Interest Rates: State Bank Of India has cut it's interest rate twice this year. So, you can avail SBI Home Loan at lowest interest rates.
  
  

How to Save Money on Home Loans?

Taking a Home Loan is one of the biggest financial decisions in life. It is often the first step towards building your own nest. It is very easy to get carried away and not take into consideration some of the important factors while taking a home loan. If you keep these things in mind then you can save money and also clear your home loan at the earliest possible.

Lets us understand how to pay off home loans faster:

• Re-examine your financial situation: Before taking any measures to pay off your home loan faster, first do a self check of all financial investments. Look at the short, long and medium term investments made and make sure that none of these are getting affected by the loan payment. The surplus amount of earnings left after meeting other financial goals should be directed towards payment of the home loan.

• Change EMI and save interest: Before choosing an Home Loan EMI option that is lower, think twice. Even if you increase your monthly EMIs by a slight amount, there is a chance that you will have to pay a lesser interest. This in the long run will put more liquid funds in the hand and will also help you pay the loan amount in a shorter span of time. You can choose Bankbazaar's Home Loan EMI Calculator to calculate Home Loan EMI for your loan amount.

• Consider partial payments: Whenever you have surplus funds in hands after receiving a bonus or increment, redirect those funds towards payment of the loan. Most banks and financial institutions allow this. This is one of the most convenient methods to clear loans in a speedy manner.

• Budget other expenses: When you have a loan in hand, make it the first priority to clear the debt. If not, the interest rate will keep on adding up and it will become a financial burden that leads to a lot of frustration and emotional stress. This will affect your other financial goals and also make it difficult for family members. So cut down on luxurious spending, expensive holidays and splurging for while and direct those funds towards the loan instead.

• Make a bigger down payment: It is always wiser to choose to make a huge downpayment to cut down on interest rates. The higher the down payment, the lesser the interest rate on the loan availed and vise versa.

• Take a loan for a short term: Though this may sound overwhelming in the beginning, it is always better to take a loan for a shorter duration. This will help  you pay off faster and also help save a considerable amount of money that will otherwise go out of the window as interest.

Apart from all these measures, it is also important to weigh all the pros and cons even before taking a plunge and going for a home loan. Compare all bank interest rates and choose one that is best in the market. Also, if you are a regular and long-term customer of a bank, make sure you negotiate and ask for a lower interest rate. Most banks will offer these kind of discounts to loyal customers.

Things to Consider Before Transferring Home Loan

If you are a home loan borrower, you must have seen other banks asking you to transfer your loan to them to gain benefits such as Longer Tenure, Lower Home Loan EMI, lower Home Loan Interest Rates etc. Transferring home loans means that the pending loan amount that you have with one bank will be transferred to another bank. In this case, you will be repaying the pending amount and continuing your loan with the new bank.

Transferring home loan from one bank to another is not a bad idea, but borrowers must be aware of all the pros and cons related to it. Home loan borrowers should take into consideration different factors before they decide to transfer their loan to another lender.

Things to Consider:

• Total Outflow – You should calculate the total loan amount that you have to pay back to the bank before you decide to transfer your home loan. Calculating the total outflow will help you compare the difference between the repayment amounts of your current and new banks. The new bank may reduce your EMI by increasing the tenure, but you must remember that in this case interest will keep adding on your outstanding amount. It is advisable to increase your EMI amount and clear off your loan sooner to save money on interest. If you are already paying a higher EMI to your current bank and are not struggling for cash, then you might not want to transfer your loan.

• Charges – If you take a home loan, you will have to pay various charges besides interest such as processing fee, legal charges, stamp duty, etc., to your lender. Before deciding to transfer your home loan to another lender, you must take into consideration all the charges (including interest) of the new lender and compare them with the charges of your current lender. Some banks charge a percentage of the loan amount as processing fee, some have a fixed amount while there are others whose processing fees is dependent on the occupation of the applicants. Also, if your current bank finds out that you are transferring your loan to another bank, it might increase the closure charges.

• Collateral Security – If you had provided a collateral security to your current bank while taking the home loan and have already repaid a huge part of your loan, then do not offer the complete collateral again to the new bank. It does not make sense to offer a collateral, the value of which is double your pending loan amount. You should offer a lower amount as collateral or ask the new bank to lower down the interest rate.

• Loan Terms and Conditions – Before you sign any loan agreement, you must read the terms and conditions of that particular loan. In case of loan transfer, you should read and compare the terms of both the banks to understand the pros and cons.

• Allied Account – Banks generally ask their borrowers to open a savings account with them when they apply for a loan. If the bank to which you wish to transfer your loan asks you to open a new account with it, then you should first find out the benefits and charges of that account. Also, if you use the current account of your current lender for all your banking needs, then you would be their premium customer. Premium customers enjoy extra benefits and services are provided to them quickly by banks. You should think carefully if you really want to lose this comfort and switch your loan to a new bank or stay with your current bank.

• Other Offers – Some banks try to attract customers by offering them extra benefits along with home loans such as credit card, insurance, etc. Before agreeing to transfer your Home Loan to another bank to avail such offers, you must consider if you even need them or not. Also, you must read the terms and conditions of such offers before accepting them.

These are some of the things that you must consider before transferring your home loan to another bank. Do not get attracted by offers such as low interest rate, free credit cards, insurance, etc., easily. Research well and choose wisely.