Total cost Remaining loan tenure Outstanding principal Time and effort
Due to a high disparity between interest rates for existing and new customers, several home loan customers are unhappy with the high rates they are being forced to pay. But when banks start discriminating between you and its new customers, it’s time for you to transfer your home loan to a lower interest rate and save money!
Cost Benefit Analysis of Loan Transfer
1. Before transferring your home loan a thorough cost benefit analysis needs to be done. For balance transfer of loan customer needs to pay applicable costs which include processing fee, stamp duty and other documentation charges. If the customers tends to spend too much in the process of the home loan balance transfer, then it is not advisable.
2. Balance transfer will depend on the difference between the interest rates offered by the two banks, the amount of the loan left unpaid and the tenure remaining. If the unpaid amount is low or if only a few years remain in terms of tenure, balance transfer may not be ideal. This is also because banks often levy a processing fee for balance transfer and in the end it may not be all that beneficial.
3. If home loan is on a fixed interest rate, then customer will have to pay a pre-payment penalty to transfer your loan. In this situation it is not advisable to transfer your home loan.
4. But if you have a high floating interest rate, then transferring your loan to a lower interest rate will be beneficial.
5. If you have a home loan with long repayment tenure, then transferring will benefit you, as a longer time-period implies higher benefit. The thumb rule to calculate benefit of a balance transfer is a reduction of 100 basis points if tenure left is less than five years, 75 basis points if around 10 years left and 25-50 basis points if 15 - 20 years left.
Get loan details, foreclosure letter and list of documents from existing Bank
ubmit a letter to the existing bank requesting a loan transfer. The letter should request for the NOC (No objection certificate) , foreclosure letter, Statement of account of your loan and list of documents. Based on your request, the bank will give a consent letter / NOC, list of documents and a statement mentioning the outstanding amount. All these documents need to be given to the new bank, who then sanctions your loan amount to the old lender for an account closure.
This step may take 1 – 3 weeks, varying from bank to bank. At this stage, your current Bank will try to retain you by offering to slash the interest rate. It is best to take this offer and get a counter offer from another bank, with a little more effort.
Application to New Bank
After you have selected new bank, you have to fill in the application form wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs. The Bank you are moving on will treat your home loan as fresh and you have to follow all the procedures again. It will include your credit appraisals, legal verification of your property credentials and also the technical evaluation by the new bank, etc. You are required to submit the necessary documents to the bank which will be verified together with the details in the application.
Credit & default check
Bank checks out the borrower's loan eligibility (through repayment capacity) & the amount of loan is confirmed. The borrower's repayment capacity is reached which is based on the income, salary, age, experience & nature of business etc. Bank also checks credit history through the CIBIL Score which plays a critical role in deciding & approving your loan application. Low Credit Score implies that the bank upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application.
Legal and Technical Assessment of the Property
Technical Assessment: A qualified technical officer will conduct a valuation on the property that will be used as security.
Legal Assessment: A qualified lawyer will examine the property documents i.e. chain of agreements, title deeds etc to determine if the property documents provided by you are conducive for lending. This is to ensure that the property is clear, marketable and free from any debts and encumbrances.
Based on the technical and legal assessment report, we will determine if the property is suitable for mortgage lending purposes.
Bank sanctions Loan & Offer letter to the borrower:After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, the bank further sends an offer letter to the borrower which constitutes the details like rate of interest, loan tenure & repayment options etc. Once you get a credit approval from the new bank, it’s time to make the final decision to transfer the loan.
Loan Disbursal and Handing over payment to the existing bank
Some banks insist on a prior notice before you can prepay your home loan. Check your loan agreement carefully and ensure that due notice is given to or waived by your existing bank. The cheque is made in the favor of your existing bank and is handed over to the existing bank. Your existing bank may typically take 10-20 days to handover property documents to the new bank.
The documents required for processing home loan application are almost similar across all the banks and financial institutes; Some banks and financial institutes might have slightly different requirements.
Following documents are required for processing of home loan. The types of documents varies across the financial profile of the person.
Banks and financial institutes require Self Attested copies of Documents.
The Signed application form duly filled with photograph ID/ Age Proof - PAN Card/ Passport/ Aadhar Card and Residence Proof – Passport/ Utility bills/ Bank Statements. Cheque of Processing Fee
Last 2 years Form 16 or Income Tax Returns Last 3 months salary slips Last 6 months bank statement reflecting salary credits Existing Loans’ sanction letter with repayment tracks
Self employed Individual/ Proprietorship
Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate Last 3 years IT tax returns with profit and loss account and balance sheet duly audited by CA Latest 12 months bank statement- Savings Account and Current Account Existing Loans’ Sanction letters accompanied with repayment track Business profile on the letterhead of the company
Partnership Firm/ Partnership LLP
Age proof of all the partners in the form of PAN Card, Passport or Adar Card PAN Card of the company Residence proof of all the partners –Utility Bills/ Passport/Bank statement/ Registered rent agreement Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificatev Latest 3 years Income Tax returns with profit and loss and balance sheet duly audited by CA. Latest 12 months bank statement of the Company and of the Partners’ Savings Bank Account Partnership deed Existing Loans’ Sanction letters accompanied with repayment track Business profile on the letterhead of the company
Private Limited / Limited Company
Application form duly filled with photographs of directors. Age Proof of Directors- PAN Card, Aadhar Card, passport Residence Proof of Directors- Utility Bills/ Passport/Bank statement/ Registered rent agreement PAN Card of Company Education Qualification- A professional qualification certificate in case of Doctors/CA/Architects Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate MOA, AOA, List Of Directors, Share Holding Pattern of the Company certified by CA Last 3 years IT returns with Profit and Loss account and balance sheet duly audited by CA. Latest 12 months bank statement of Company of all current accounts and the same for Director’s Savings Bank Account Existing Loans’ sanction letter with repayment track of company and Individual Directors Business Profile on the Letter Head of the Company
Occupancy Certificate Approved Plan of building Chain of deeds in case of resale property Nil Encumbrance Certificate- EC ( if applicable) Copy of Sale Agreement / Draft Sale Agreement Copy of Stamp Duty Receipt Copy of Registration Receipt Copy of Building Sanction Plans Copy of Chain of Agreements (if any) Copy of Share Certificate (if Society formed) Copy of Payments Receipts made towards the Property Copy of Allotment Letter from Builder (if allotted)
Additional Documents required for Loan Transfer
foreclosure letter your payment history and list of your documents that the bank has
Net Salary pm after tax deduction = 80,000/- Averaged out incentive pm = 20,000/- Averaged out LTA pm = 2,000/- Current Personal Loan EMI = 5,500/-
50% of Net salary = 40,000/- 25% of Incentive = 5,000/- 25% of LTA = 500/- Appraised Income = 45,500/- Appraised Income [-] less] ongoing EMI = Final Income to be considered.45,500 [-] 5,500 = 40,000/- Suppose the loan is @ 10% for 20 years; then EMI per lac @ 10% for 20 years is Rs.965/- The eligibility would be Final Income / EMI per lac for the tenor.40,000 / 965 = 41.45 lacs Hence, the eligibility is Rs. 41.45 lacs @ 10% for 20 years Every banks has its own method for calculating eligibility. It is advisable to check the eligibility with the concerned person. The simplest way to increase your loan eligibility is by increasing the loan tenure. But the loan tenure is directly dependent on the age of the applicant. As the age increases the borrowing capacity decreases. Applying jointly, with your parent or spouse, increases loan eligibility.