Are you switching Home Loan to SBI? What are the points to consider before you switch your Home Loan from one bank to another like HDFC to SBI or ICICI to SBI?
Reserve Bank of India is maintaining the repo rate at 8% for a long time and the news is that the interest rate will start falling in the early part of 2015. Lots of Home Loan customers are waiting for this to happen to get a reduction in their EMI.
Yes, interest rates are high in the country for a long time and it has affected the real estate sector in the country. Many projects are stuck midway and many investors are waiting because of delay in delivery of the projects.
Will you switch your existing Home Loan to SBI?
The decision to switch Home Loan to State Bank of India(SBI) should be considered after doing a cost benefit analysis. There can be many hidden charges attached in the deal. You must consider the following points before switching Home Loan to SBI.
- Negotiate with your existing lender for a lower rate
The interest rates are going to come down in the country for sure. Most lenders will reduce the rates in due course. Some banks like SBI will be more transparent in it. If you are a good customer, the lender may consider your request to offer a lower rate to you. This will work out only if your repayment is prompt and if your Credit Score is good. So, the first step will be to negotiate with your existing lender to get a better offer. The lender may charge a fixed percentage of the outstanding loan as cost of refinancing.
- Compare the rates offered by competitors
The switching makes great sense only if there is a reduction of at least 1% from the current rates. So, before accepting any offer, make a study about the interest rates charged by other lenders and check for the best offer. The loans linked to the base rates are more transparent. Better avoid fixed rate loans which are really not fixed in full spirit. Teaser loans offering lesser rates in the beginning and then market rates are also not transparent.
- Charges for switching Home Loan to SBI
Most lenders charge Processing fee while sanctioning new loans. This is applicable for loan transfer also. Some lenders are charging a fixed percentage of the loan amount as Processing fee. It can be 0.5% to 1.5% depending on the lender. Some lenders are charging a fixed rate irrespective of the quantum of loan. There can be special offers like No Processing fee during a particular period. There can be charges like engineer’s fee and legal fee for title verification. You must analyse the total charges associated with switching before taking the decision to switch the Home Loan to SBI.
- When to switch the Home Loan to SBI?
The EMI consists of 2 components – Principal and Interest. In the early years of the loan, the interest component will be very high and the Principal component will be small. Switching Home Loans to a lesser rate at this time can save you lot of interest outgo. Even a 0.5% reduction will make a difference in the long term. But towards the end of the loan term, your EMI will consist of high amount of Principal and low amount of Interest. At this stage, switching for a small reduction in interest may not be a good option.
- If you are pre-closing the loan very fast?
If you are planning to pre-close the entire loan in the next 3-4 years, then switching Home Loan will not make much sense. There is no prepayment penalty on Floating Rate Home Loans. So, you can pre-close the loan as per your convenience and make your property debt free. But, if you are not in a position to pre-close the loan and are planning to pay the EMI for the long term, then switching Home Loan to a reduced rate will be the better option.
Why switching Home Loan to SBI is better?
Being the largest bank in India, SBI is more proactive in offering the lower rate benefit to the borrowers when there is a reduction in interest rate by RBI. The loan is linked to the base rate and the interest rates are very competitive. With their large network of branches, you will get the service in your area.
So, if your existing lender is not ready to offer a reduction in rates and if you are getting a reduced rate from SBI, without much attached cost, it will be a better idea to switch the Home Loan to SBI.
Which things do you consider before switching Home Loan to SBI or any other bank like HDFC, ICICI ?