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Business • Business Opportunities
What's the RightTime to Switch a
Loan?Jul 26, 2015 • By Umang Estates •
Why should you switch from one home loan lenderto another? Firstly, switching home loans helpsyou avail benefits of lower interest rate whichbrings down the equated monthly installment.Secondly, it helps borrowers keep their equated-amount constant and have their repayment termreduced.
Many borrowers also switch loans to change theinterest type- from fixed rate to floating and viceversa. Borrowers switch from fixed rate to floatingwhen they feel that the Reserve Bank of India(RBI) may reduce interest rates in the future.
Similarly, when there is a possibility of a hike ininterest rates, borrowers switch from floating tofixed rates. If one were to look at the currentscenario, there is every likelihood of the interestrates going down.
Cost of Switching
Lenders levy a one-time fee for switching loans.The fee can be somewhere around 1 to 1.5 percent of amount. In some cases, banks charge afixed amount. Borrowers should also take this feeinto consideration before switching their loan.
If you are switching your loan with an existinglender, your bank may charge you a conversionfee of 1 to 2% of the outstanding amount. Thisstep saves you from the hassles of documentation.
When to switch?
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To avail maximum benefit, you need to switchduring initial years of repayment. As you near theend of your repayment tenure, your EMI comprisesmore of the principal component and less ofinterest, switching loan at this stage would serveno purpose. Do not switch your loan unless youhave remaining loan tenure of at least 8 to 10years.
How to save more?
The thumb rule for good savings is to switch only ifyou have at least 8 to 10 years of loan tenure leftor the difference between your existing and newinterest rate is at least 1%.
Procedure to switch loans
Following are the steps required to switch yourloan:
Write to your bank intimating that youplan to switch mentioning reasons forthe step.Seek consent letter from your existingbank giving its nod to switch loan.Procure documents such as accountstatement, foreclosure statement andpapers related to property from yourexisting lender.When you approach your new lender,the procedure is the same as applyingfor new loan.You would require documents such asidentity proof, copy o PAN, previousbank statements, address proof, copy oftitle deed of property salary slip, copy ofincome tax returns, etc.The new bank will sanction the loanafter due credit appraisal and otherinvestigations.Fixed or floating?
There are a number of banks and housing financecompanies that offer numerous home loan
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About the Author
Umang Estates
This article is published"HINDUSTAN TIMES" onthe date of 25 July 2015.The author is Rishi Mishra
co-founder of deal4loans.com. (show bio)
products. Customers generally get confused as towhat kind of interest rate is better for them- fixedor floating?
Fixed rate is good for those who are good atbudgeting while floating rate serves well wheninterest rates are low. You must assess yourrequirements and then choose whatever suits youwell.
HERS'S WHAT YOU NEED TO CHECK
Interest rate and difference in EMIOutgoing cost: prepayment charge ofexisting bank and processing fee of newbank and other additional chargesLoan tenureOther costs such as legal charges,stamp duty and valuation fee
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