Home Loan Uncategorized

Why lower interest rate alone should not push you to switch your home loan lender

Interest rates are one of the key factors borrowers look at when choosing a lender but it is important to consider some other aspects too.

Borrowers with home loans have a new reason to be a little happier. Most financial institutions have been reducing their home loan rates to new multi-year lows. Of course, the existing borrowers wish to reap the benefits of the falling rates.

And why shouldn’t they? After all, home loan is one of the most significant things for people earning cash income. So if the interest rate on home loans is lowered, then it can result in substantial savings on interest outgo.

Nowadays, most of the private banks are disbursing home loans anywhere between 6.9 % to 9% interest rate. These cuts have allowed home loan borrowers to switch their existing loans to avail a lower rate of interest.

However, a lot of people make the mistake of switching their home loan lender just because of a lower interest rate which is not recommended.

There are some other reasons why you shouldn’t consider only lower interest rates:

  1. A borrower should look at the eligibility criteria and EMIs
  2. Other charges to be looked at are processing fee, stamp charges, down payment etc. Most financial sectors don’t inform the customers about these charges.

By switching their ongoing loans, current borrowers may get the advantage of lower rates. However, you need to be more careful. Do not just change your loan lender because of the interest rate difference. A bit of cost-benefit analysis needs to be done to see whether making a move to switch the lender is sensible or not.

But if it is not just about the difference in interest rates, then what else should a borrower consider?

Prepayment charges of the old loan, processing fees for the new loan, stamp duty fees, legal/technical fees, etc. may make a considerable difference by introducing layers of the extra cost that a borrower may incur while switching.

There is no denying that even a small reduction in interest loan rates can mean savings for the borrower. But if the additional costs nullify that benefit from lower interest rates, then the very purpose of the loan switch stands defeated.

The actual savings will, however, depend on the amount of loan outstanding, the difference between the interest rates, tenure remaining, and the cost involved in switching.

Ideally, the calculations are handled on a point-to-point basis. Another factor that you should consider is the outstanding of the loan tenure. Borrowers can make a proper assessment by calculating all the additional charges involved in addition to the interest rate differential.

Home Loan Transfer Process At Shubham:

To switch your home loan lender, the borrower has to approach Shubham’s representative.

A borrower should have all the required documents, including

  • Identity proof
  • Address proof
  • The old lender’s letter of consent along with the outstanding loan amount

Based on this we review the application and then the sanction letter is issued.

Note, that we require property-related documents, such as a registered agreement based on which we perform the legal and valuation process.

At Shubham Housing Development Finance Co. we charge you a minimal cost during the home loan transfer process.

Hope this helps you in making the right decision!

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