Shifting to another housing financier: Opportunities and Challenges

By Nikita Parekh

Home loans are the key for buying a dream home for an individual. The raising prices of the housing units, has boomed the demands for home loans. The high prices of the units have compiled the home buyers to opt for a home loan to acquire their dream home. The banking sector is flourishing with the customers for the home loans. Although, there is great demand for housing finance in the market, but the increasing inflation and increasing prices of houses is restricting buyers to buy homes. Hence, slowly the demand for home loans is decreasing; people are procuring difficulty in buying home, in such a costlier market. As a result, the market of housing finance is also capturing a deem environment.

To sustain in the competitive market the banks and housing finance companies are coming up with special schemes and features to attract customers. They are offering attractive interest rates with additional benefits and schemes to increase their loan sanctions and sustain in the market and earn good profits. Basically Interest rates vary from institution to institution and presently range from 9% to 12.5 % for floating interest rate & 11.25% to 14% for fixed interest rate (for loan amount below 20 lakhs). The interest on home loans in India is usually calculated on monthly reducing balance. In some cases, daily reducing basis is also adopted.

Banks and HFCs have their own strategies to attract customers to opt their bank for transferring home loans they offer different schemes such as Maximum Tenure of Loan, low Interest Rates, Nominal Processing Fees, Easy Repayments, Simple Security, Easy Documentation, Tax Benefits, etc. “The loan borrowers expect a lot from banks and specially from government banks to decrease the interest rates and provide easy EMI schemes, to satisfy the clients and increase the sanctions we are offering the special schemes,” says an official from State Bank of India.

Growing competition is enabling banks to offer special schemes like SBI the largest government bank did recently, they are providing facility to their existing customers to transfer form prime lending rate to newly launched floating rates that are much lower than the prime lending rates. The current floating rates of the bank is 10 per cent and it varies from 10.5 per cent for up to Rs 30 lakh loan, 10.75 per cent for between Rs 30 lakh and Rs 75 lakh, and 11 per cent for loans above Rs 75 lakh.  HSBC is offering special interest rates on Home Loan transfer or transfer of Home Loan with top-up loan up to 100%, on the loan transfer amount. They are providing loan transfer interest offers on two categories for Home loan/ Home Loan Top- up and Smart Home/ Smart Home Top-up 9.75% p.a. and 10.50% p.a. for upto 25 lakh, 9.99% p.a. and 10.74% p.a. for above 25 lakh and up to 50 lakh nad 10.10% p.a. and 10.74% p.a. for above 50 lakh and up to 150 lakh respectively.

Sources: www.nhb.org.in

Sources: www.nhb.org.in

Reasons to transfer the loan:

The growing inflation is compiling the banks and housing finance institutes to increase the interest rates on home loans, this creates a disturbers the equated monthly installments (EMI) on home loans for the buyers and especially it’s a big problem for the individuals who have opted for floating interest rates. It becomes difficult for the salaried individuals to reconcile with the increased rates and are disconcerted on their monthly budget. As, a result now-a-days the new trend of transferring the home loan to another bank or housing finance company is emerging rapidly. The customers are opting for such HFCs and banks who are offering low interest rates and attractive EMI’s and transfer their home loans.

Opportunities:

Transferring the home loan to the another lender can provide better deals to one, like it can facilitate one with reduce your EMI outgo, there is no one-size-fits-all solution for everybody. But, to know if it will help really help you, you need to decipher its workings and calculate the actual benefit before taking a call. One needs to clarify all the doubts and enquire about all the conditions, like many people assume that the new rate will remain constant over the balance tenure. Such number crunching will give you an estimate of your likely savings in case of a switch, or the loss you may incur if you decide to stick to your existing bank/HFC.

Now, also the prepayment penalty which was levied on home loan buyers by the existing costumers is been abolished by RBI and NHB, hence now there is no worry of paying the loan early before the tenure date. Like ICICI and SBI have waived this fee, but some banks could still charging a penalty. But, negotiating with the bank to wave off the penalty can help, as RBI and NHB mandate clearly are not in favour of penalty for prepayment in the case of a floating interest rate loan.

Sources: www.nhb.org.in

Challenges:

Before opting for the loan transfer process you need to consider certain aliment and take care of it. Mainly, there are six aliments one has to be careful with. Firstly, one needs to calculate the total outflow, the banks offers reduced EMI’s, long span to repay the loan amount, this facilities increases your loan tenure and will ultimately increase your interest payment. Secondly, Study the processing fees and other allied charges, as you transfer to the new lenders they charge processing fees which can be from 0.5% to 1% on the loan applied, most banks restrict this amount to Rs.5000, legal charges, stamp duty charges etc.

Then, charges and benefits of allied account requirements, many banks requires the loan buyer to open a saving accounts in the bank to route the money though that account. Even though RBI and NHB has waved off prepayment penalty, but still some banks are applying this penalty which can vary between 2%-5% of the principal outstanding of the loan at the time of refinance.

The concept of home loan transfer has emerged a new completion in the home finance market, this confuses the buyers also, the buyer is puzzled in the market where each one is trying to offer something better. In the hope of low interest and attractive offers, sometimes buyers keep changing the home loan lender and keep rotating. In such situations a single buyer for a single housing unit borrows loan from 3 to 4 banks or HFCs, this is a drawback for banks and HFCs and as well as for buyers as their processing and other charges increases.

To avoid such issues the loan borrower can always negotiate with their respective existing housing financier to facilitate with lower interest rate which other banks are offering and can experience the benefits with the existing financier without the extra burden and efforts.





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