ATM :: Should you switch home loan and why?

Rishi Mehra, Co- Founder, | Nov 4, 2014, 05:44PM IST |
The Indian loan market has been given a boost owing to faster processing, rebate on income tax and flexibility of repayment.

The domestic loan market is expected to touch Rs 21,980.6 billion by 2016 at a CAGR of 18.7 per cent. Among loans, home loan holds the largest share in the market. According to a research by TechSci, home loan had a market share of 46.1 per cent in the Indian loan market in 2010. Declining rates, flexible repayment options and a spurt in housing schemes is seen as a catalyst for the growth.

A typical home loan runs for an average 15-20 years and it is advisable to continue monitoring the loan account and scout for better offers from other banks and not sit idle. A customer does not need to stick to the original bank and keep repaying the loan at the original rate. One can always switch and take advantage of lower loan rates and processing fees and no one can stop the customer from doing so.

Usually, an existing borrower is not eligible for a lower loan rate until he is about two years into the tenure. Though the Reserve Bank ofIndia has been insisting on lower interest rate benefits to be passed on to all existing borrowers, it is a rare occurrence. Customers, in such a scenario, can re-negotiate loan rates and if the bank is not agreeable, they can consider transferringthe balance loan to another bank.

Some case scenarios to be considered while deciding to switch your home loans:

Difference between current rate charged by the bank and available rates from other banks

If there is a difference of equal or more than 0.5 per cent in the existing rates to new rates one should go ahead and switch the home loan. If you switch your home loan from 10.50 to 10 per cent for a loan amount of Rs 50 lakh and a loan duration of 20 years, the savings will add up to Rs 4,00,298 for that period. For such savings one shouldn’t think twice, as there are no pre-payment charges at any bank or housing finance companies.

The new processing fee

One should switch to a new bank with lower processing fee as well.Processing fee is a one-time cost and eats into switching home loan savings, so try to get the bank with low charges and low processing fee.

Need top up amount on home loan

At times some customers need top-up loan and there are banks who offer top-up at the same home loan rate. So, one can switch when he is getting a new lender at a lower rate and is willing to top up your loan.

Talk to your existing bank and show the new offer

A customer should always talk to his existing bank and show him the new offer.If in such a case the existing bank agrees to reduce the rate and match the offer, one shouldn’t switch the home loan. But in case the existing bank can’t match the new offer, then it is advisable to go for the switch.

A home loan is usually for a period of 15-20 years and during such a long period one should be aware of offers from other banks and switch whenever it makes sense monetarily. The right re-finance option will depend on a person’s needs and the current financial situation. With the right re-finance rate quotes, one can really shift their payments so they can make their life easier.

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