Are you looking to switch your housing loan provider? If yes, then now is the time! Many lenders have reduced the interest rate on housing loans, and some are offering even lower rates on home loan balance transfer. As such, it makes sense that you are thinking about switching to a different lender. But there are certain factors that you must consider before you make that decision.
The EMIs at the beginning of the tenure mostly constitute the interest. With time, the interest component gradually decreases and the principal component increases. If you switch to a lender that is offering a lower home loan interest rate, but you have already paid off most of the interest, your savings will be insignificant.
So much so, that if the remainder of your tenure is five years or less, you will not be saving any money. Therefore, make sure you are switching at the right time. There are online home loan calculators you can use to evaluate how much you could save by changing lenders.
Some lenders advertise interest rates that are so low that borrowers are compelled to leave their current lender and switch over. But borrowers soon realise that the advertised rates are only applicable for a stipulated time-period, after which they start to rise. But by then, they have already paid the processing fee and the stamp duty and gone through all the hassle of getting their documents released from the old lender and submitting them with the new lender. Be vigilant and try to avoid such schemes when looking for a new home loan provider.
Additional Reads – All You Need to Know About Home Loan Balance Transfer
Difference in interest rates
The remaining tenure and the difference in the home loan rates must both be considered together. For example, if you have over 15 years left to repay your loan, it is advisable to switch only if the new lender is offering an interest rate that is at least 25 bps lower than what you are currently paying. And if the remaining tenure is between 10 and 15 years, then this difference should be 50 bps or more. One bps or Basis Point is 1/100 of a percentage point. Use a home loan EMI calculator to understand the effect of the difference in the interest rate on the EMI.
Additional Reads – Top 5 Things to Know About Home Loan EMI Calculator
When switching over to another lender, borrowers are so taken with the reduced interest rates that they forget to consider other charges. Consider the foreclosure charges, prepayment charges, penalty on late payment and default, etc. Also, consider the processing fee that they are charging for the home loan balance transfer.
Moreover, if you have been irregular in your payments with the current lender, the new lender may reject your transfer application or charge a higher interest rate. Use an EMI calculator for home loans and check the applicable interest rate.
Are you looking to switch to a new lender? If yes, then Tata Capital is the lender you should choose. Because of our flexible home loan eligibility criteria and minimal documentation policy, the entire loan application process becomes easy and hassle-free.
To see for yourself, use our online home loan eligibility calculator today.