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Switching home loan lender? Remember THESE 4 things

Last updated on: August 22, 2012 18:40 IST

Switching home loan lender? Remember THESE 4 things

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Salil Dhawan, Investment-mantra.in

We evaluate some significant factors that you must consider while switching your existing home loan to another lender

Many banks and financial companies are competing with each other to encourage home loan borrowers. People opting for home loans can switch to cheaper loans and can save a good amount of money by choosing the best finance company offering loans at low interest rates.

In the current interest rate scenario, with some banks reducing their home loan rates and others deciding to wait before taking the step, more and more borrowers are considering switching their home loan from their existing bank to a bank that has a more attractive offering. If you switch early enough or to a bank that offers a low enough interest rate, the shift will be worth it in terms of money saved over the remaining home loan tenure. The earlier you prepay, the more you save on interest, the better.

Courtesy: Investment-mantra.in


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1. Compare interest rates offered by various banks and housing finance companies

Before switching home loan, you need to gather all information about the bank offering you home loan at lower interest rates. If the new lending company is offering marginally lower rate compared to existing interest rate, don't switch your home loan in haste as it may increase your existing interest rates.

2. Negotiate with the current lender for a better deal

Competition among financial companies to offer the best to customers has turned out to be a blessing for borrowers and homebuyers. Approach your existing bank and ask for a rate cut in line with what is offered to new borrowers. Your current bank will insist for a round of negotiations before allowing you to make the switch.

This will be a good time to transfer and let them know why you're discontent with their present terms and conditions. There's a chance that they may reduce your interest rates and you won't have to make the switch. You can use your credit score as a bargaining chip provided it is strong, and one thing that always works is to indicate that if rates are not reduced, you have the option of switching to another lender.

It will be in the interest of the bank to keep you as a borrower and earn a little less interest from you, than lose you as a borrower and therefore earn no interest from you at all.


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3. Evaluate all home loan lenders

Approach as many banks and housing finance companies as possible and see which one offers you the lowest rate of interest and charges the lowest processing fee. Shop around with various lenders to see who will give you the best offer. Keep in mind that the new lender will want to assess your repayment history, so it might help to have your EMI statements at hand.

4. Waiving off of processing fee

Banks charge in the range of 0.5 per cent to 1 per cent of the total loan amount you are applying for. It is possible, with hard bargaining to get the new lender to waive or at least reduce the processing fee. If you are approaching two new lenders, and Lender A agrees to reduce or waive off the processing fee, you can use this fact to get Lender B to do the same.

There are also some banks that in some cases waived their processing fees altogether. It might take some bargaining but it is very possible. Look for this kind of deal if you are planning to opt for balance transfer.

Conclusion

The main advantage of switching your home loan is that your monthly EMI will come down when compared to current EMI. On the other hand, switching of home loan frequently would result in processing fee. Switch your home loan only if lender offers lower processing fee and significantly lower monthly EMI. Make sure, before switching on to cheaper home loan, that you compare some of the important aspects like penalty on pre-closure (if any), processing charge of the new bank, tax benefit on interest and so on.

A well laid out strategy will benefit you to make a right choice between existing lender and other peers in the market.


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