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7 things to consider before you planned to transfer home loan

Home loans are long-tenure loans which go up to 30 years and most people spend a large amount in servicing it. During the loan tenure, more than 50 per cent of a home loan EMI component is the loan interest amount that you pay to the bank. The current SBI interest rates
on home loans range from 8.70 per cent to 9 per cent for loans up to 30 lakh, and 8.90 per cent to 9.20 per cent for loans above 30 lakh and up to 75 lakh. However, if you think you are paying high interest and EMI (Equal Monthly Installments) to your current bank, you can consider transferring your home loan to another bank.

On getting your home loan transferred, the new lender pays the loan balance to the previous lender in full, and you start paying the EMIs to the new bank. Experts suggest one should get a home loan transferred if they are in the initial 4-5 years of the loan because the interest component is higher that the initial years. In the mid or end of the tenure transferring your home loan might not be financially beneficial for you as you would have already paid the higher interest part to the lender. Hence, before opting for a balance transfer, do a thorough analysis as the extent of savings generally depends on the difference in interest rates, outstanding amount, charges of switching loan, and the tenure left.

Here are some of the things to consider before opting for a home loan transfer:

1. Home loans are based on MCLR if taken from banks (Marginal Cost of based Lending Rate). NBFCs (non-banking finance companies) and housing finance companies, however, do not follow MCLR and their loans are based on market standards and their competition. Experts say before making a switch one needs to compare the difference in these rates.

2. A home loan should ideally be switched if and when the interest rate that you are paying is higher than current market rates, hence the transfer will lower your EMIs. Home loan interest rates are usually revised every year, at the end of completing a year.

3. Credit rating also matters while opting for a loan transfer. Loan transfers are like taking a loan to pay off an existing loan. Hence, if your credit rate has fallen between the time you first took the initial loan and now, it could affect your chances of being qualified to get a loan transfer.

4. One should not switch one’s home loan if they are closer to the end of their tenure. You should also not plan to transfer your home loan if you are planning to sell the house in the near future.

5. One should weigh in additional charges like a penalty, or any foreclosure charges and then calculate if the expense of transfer is worth it. Some banks also charge prepayment or foreclosure fee. Hence check that with your bank before opting for a transfer.

6. Additionally, banks also charge processing fees while getting a loan transferred, which you may have to pay to your new bank. Generally, this amount is one percent of the outstanding loan amount.

7. The process of transferring a home loan generally takes around 15 to 20 days. However, the waiting period should be shorter if you are moving from base rate to MCLR within the same bank.

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