A borrower can shift the home loan to any other lender, who is willing to offer better interest rates. At times, a home loan applicant may also want to increase the loan’s tenure, due to various reasons. A customer may also want to transfer the loan, if s/he wants a top-up loan on the existing loan and the present lender is not willing to offer the same.
What is the process for transferring a home loan?
To transfer a home loan, the existing lender needs to be paid first, before it releases the original documents of the property. However, the new lender will not issue a cheque, unless it receives the original property documents. So, how does one resolve this catch-22 situation? A borrower can request his/her existing lender, to issue a letter to the prospective lender. This letter should mention the list of documents related to the property lying with the present lender, the outstanding loan amount, and an undertaking that the bank will hand over the property documents to the prospective lender, on payment of the outstanding amount.
The new lender will also carry out a due diligence check on the property and the customer, to assess the title of the property and the repayment capabilities and track record of the borrower.
The new lender may not be willing to transfer the loan, unless you have a good repayment history and your credit report is also good.
What are the charges involved for transferring a home loan?
For shifting your home loan from one lender to another, you may have to pay charges to both lenders.
The existing bank may levy prepayment charges on the loan. Banks and housing finance companies are not allowed to levy any prepayment charges on floating rate home loans. Even in case of fixed rate home loans, housing finance companies cannot levy this penalty, if the borrower prepays the loan out of one’s own funds, other than by borrowing from any financial institution.
The borrower may also have to pay the processing charges to the new lender. This may vary from 0.2% to 0.75%, from one lender to another and also depends on the applicant’s profile. At times, banks may waive the transfer fee or charge a nominal amount. In February 2014, SBI offered a flat processing fee of Rs 1,000 for balance transfer.
Applicants should remember that the processing fee payable to the bank is negotiable and consequently, they should bargain to minimise the amount or for a waiver of the transfer processing fee.
Although the new lender may not charge you anything for processing of your balance transfer application, you may still have to pay the stamp duty and registration charges for the mortgage. One may also have to pay the valuation charges, in case the bank decides to go for a fresh valuation of the property, either for top-up loans or where the property is not approved by the lender.
(The author is a taxation and home finance expert, with 35 years’ experience)