The facility to transfer one’s home loan from one bank to another, allows borrowers to have a ‘plan B’ in case they are not satisfied with their existing lender. Besides deficiency in services, a borrower may also want to switch banks if their existing bank does not allow a renegotiation of the loan’s terms, such as changing the tenure or reworking the EMI.
Earlier, banks would not pass on home loan interest rate cuts to existing borrowers. Allowing the same would have benefitted customers and led to greater savings during repayment, points out personal finance expert, Jitendra Solanki. In such a case, transferring a home loan would have been beneficial.
Another example is that of Trilok Nudurupati, a resident of Thane, whose home’s value increased significantly when compared to the price at which it was bought. When Nudurupati wanted to renovate his home and his bank was unwilling to increase the loan amount, he switched to another bank. However, he also faced several problems while transferring the loan.
To transfer a home loan, the borrower first needs to submit an application to his/her current lender. The bank will then provide a consent letter or NOC, along with a document mentioning the outstanding amount. These documents should be submitted to the new bank to which the borrower wants to shift the loan.
The new bank will treat the application as a fresh loan and the documentation process, including submission of the employer’s letter, salary slip, photo identity proof, bank statement, etc., will have to be done all over again. Transfer of a home loan requires diligent documentation, coordination and follow up, points out Rohit Shah, founder of investment advisory firm, Getting You Rich. “Problems may arise if the original loan is jointly taken and one of the borrower has retired or income levels have reduced,” he cautions. The new bank may also refuse to take over the loan if the customer has not been paying the EMIs regularly.
If the new lender is satisfied with all the documents, he will sanction the loan amount to the previous lender in order to close your account.
Open-ended risk for the new bank
Once the transaction is completed, the property’s papers are handed over to the new lender and remaining post-dated cheques or ECS payments are cancelled. The bank that agrees to give the loan, runs an open-ended risk because the existing bank releases the mortgaged documents of the property only after receiving the payment. However, they take this risk solely to acquire a new customer.
Pay the fee, again
“As the new bank treats the application as a fresh loan, all charges associated with availing a home loan will be applicable. Consequently, the borrower will have to pay the processing fees, stamp duty, notarisation charges and franking charges. This can easily be 0.5% to 1% of the loan amount,” explains Solanki.
Not a formal procedure
According to Harsh Roongta, a chartered accountant and a Sebi-registered investment adviser, there is no formal procedure for carrying out the loan transfer process and this is deliberate. The Anand Sinha Committee that was set up by the RBI to look at issues surrounding consumer service, briefly touched upon the balance transfer issue. However, no action has been taken, yet.
To avoid hassles, most customers prefer to stay with the same bank, as long as they are allowed to switch to a lower cost loan by paying a fee.