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Posted at: Mar 18, 2017, 12:45 AM; last updated: Mar 18, 2017, 12:45 AM (IST)LOAN ZONE

How to transfer your home loan?

If you are unhappy with the terms of your existing home loan, you can opt to transfer it to another lender. We explain the process and the costs involved

Balwant Jain

With the RBI reducing repo rates a home loan borrower need not worry if his/her bank does not pass on the benefits of the reduced rates. The 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 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?

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 mentionthe list of documents related to the property lying with the present lender, the outstanding loan amount, and an undertaking that the bank will handover 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 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 pre-payment 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 per cent to 0.75 per cent, 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. 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. 

 — The writer is a taxation and home finance expert

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