A borrower who wants to move his/her home loan will track the interest rates that one charges from time to time, as well as regular deals from banks:

A borrower can move the home loan to any other lender who wants to offer better interest rates. Sometimes an applicant for a home loan may also want to increase the tenure of the loan, due to different reasons. A borrower may also wish to move the loan if he/she needs an extra loan on the existing loan and the present lender is not prepared to offer the same.

 

img1: Home Loan Balance Transfer

 

What process does it take to transfer a home loan?

To transfer a home loan, the existing lender must first be paid, before releasing the property’s original documents. The new lender will not grant a cheque, however, unless it collects the original documents on the land. Okay, how is this catch-22 scenario solved? A borrower can apply for a letter to the prospective lender from his / her current lender. This letter should mention, on payment of the outstanding amount, the list of documents relating to the property lying with the present lender, the outstanding amount of the loan & the promise that the bank shall provide the prospective lender with the property papers.

The new lender will also carry out a property and customer due to diligence checks to assess the property title and the borrower’s repayment capabilities and track record.

 

Problems people face when signing over home loans:

The new lender may not be willing to transfer the loan unless you have a good history of repayment and your credit report is good too.

 

img2: conversion of a home loan

 

What are the costs leading to the conversion of a home loan?

You may have to pay fees to both borrowers for moving the home loan from one lender to another. The current bank will charge the loan’s prepaid fees. Banks and housing finance companies are not allowed to charge any prepaid payments on revolving home loans. Even for fixed-rate home loans, housing finance firms cannot impose this penalty if the borrower prepares the loan from their own funds other than by borrowing from any financial institution.

The borrower may also be required to pay the new lender for the processing fees. This can vary from 0.2% to 0.75%, from one lender to another and depends on the profile of the applicant as well. Banks may occasionally waive the transfer fee, or charge a nominal amount.

Applicants should note that the bank’s processing fee is negotiable and should, therefore, compromise to minimize the amount or cancel the transfer processing fee.

Although the new lender may not charge you anything for handling your application for adjustment of credit, you may still have to pay the mortgage stamp duty and registration fees.

In case the bank wants to go for a fresh appraisal of the land, either for top-up loans or where the property is not accepted by the lender, one might also have to pay the valuation fees.

 

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