Arithmetic of loan transfer

S C Dhall

Do you have an existing home loan but find that another bank is offering a lower rate of interest? You can get your balance loan transferred to another bank and save a substantial sum. Home loan balance transfer is also known as re-finance home loan. It is a process where a housing loan is paid off using another loan. Generally, borrowers transfer the balance of an existing loan to another bank by applying for a home loan with them. This is done to enjoy lower rates of interest. But there are certain charges that can make this move “fruitless” for you. So, there is a need to weigh the pros and cons of loan transfer thoroughly. 

How to go about it

In case of a home loan balance transfer, you will have to request for all the loan documents that you had already submitted to your present lender. Once you get the consent letter, submit all documents along with the consent letter to the new lender. Henceforth, all loan repayments will have to be settled with your new lender and the old account will be closed. Banks, in general keep on offering schemes for transfer of loans from time to time. The lower rate of interest is the main plank to lure customers for a switch over. The State Bank of India (SBI) recently had one such offer for new customers at no processing fees. If a bank is offering such a scheme then  it is worth looking at as zero processing fee for transfer along with a lower rate of interest will mean substantial savings on loan repayment. 

Processing fee

Home loan processing fee is a one-time charge that is levied by a bank on a borrower at the time of processing of a loan. Most of the banks or HFCs charge a processing fee on their home loan. In most of the cases, processing fee is non-refundable even if the loan doesn’t get sanctioned. The amount of processing fees varies from one bank to another. 

Other charges

In addition to housing loan processing fees, banks and housing finance company also have some additional charges, which include: 

Legal and Technical Charges: Legal and technical charges are levied once you submit your property documents to the bank in order to verify your documents legally. These charges may range from Rs 5,000 to Rs 10,000. Some banks quote a lump sum fees for legal and technical charges including processing fee. 

Loan conversion charges: This fee is charged at the time of switching your home loan from floating to fixed rate or vice-versa. Loan conversion fee varies from bank to bank. However, most banks charge a conversion fee of 2 per cent of outstanding amount. 

Home Loan Prepayment Fees: This fee is charged at the time of paying off entire loan or in parts before the end of tenure. As per RBI norms, there is no pre-payment penalty on housing loan for floating rates. In case of fixed rate loans, lender can charge a prepayment penalty of up to 2 per cent.

How can I get the lowest processing fees?

You can negotiate for a discount in processing fee, if you are taking a large amount as loan or you are an existing customer of the bank. In addition to this, it is advisable to carry out an online comparison of processing fees of all banks in India and choose a home loan which comes at the lowest all-inclusive costs. Cash backs and special discounts can further reduce the cost of your home loan.

When do I have to pay processing charges?

Typically, the processing charges on home loan are to be paid at the time of documents collection.