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Balance transfer deals for your home loan

Balance transfer deals for your home loan

If you’re unhappy with the rate of interest you’re paying on your home loan, consider one of the many balance transfer deals available. Here’s what you need to do and the rates on offer.

If you already have a home loan, you’ll find that all the talk in the pink papers has little impact on what you pay. There might be a rate cut, but without any change in your interest rate. After an increase in the base rate, you may find that your bank has raised its rates, while others have kept them stable. Particularly in this economy, this is troubling. Banks make a habit out of extending fewer discounts to their older customers than potential customers. What’s the solution? It’s to become the new customer of another bank. Or at least threaten to do it. Banks are aware that most of us will simply avoid the hassle of transferring our loans. But there’s more than enough reason to do so. Here’s why:

What to consider
Transferring your loan from one bank to another is much like applying for a new home loan. The process remains the same, except that you need to get an NOC from your existing lender. While the process remains the same, though, the chance of being rejected is low, provided you’ve been repaying the loan in a timely manner. Here’s what you need to keep your mind on:

The interest rate: As it’s a long-term loan, even a small reduction in the interest rate would make a substantial difference. While your new bank would also change your interest rate as it sees fit in the coming months, new customers tend to enjoy a better rate than older customers. In the meanwhile, though, the savings are surely there for the taking. Here’s a table of how much you could save if you switched from a loan that requires you to pay 10.5% per annum over 12% per annum after 3, 5 and 7 years of taking the loan.

Loan amount Interest rate Remaining tenure Repayment
Rs50 lakh 12% 17 years Rs1.12 crore
Rs50 lakh 10.50% 17 years Rs1.01 crore
Rs50 lakh 12% 15 years Rs99.09 lakh
Rs50 lakh 10.50% 15 years Rs89.85 lakh
Rs50 lakh 12% 15 years Rs85.88 lakh
Rs50 lakh 10.50% 15 years Rs77.87 lakh

Processing fee: You may have paid this when getting your existing loan. Typically, it varies from 0.5% to 1%, though public sector banks often waive these fees entirely if you do take the loan from them. The same is the case here. Many banks waive the processing fee, while some offer fixed rates (Axis Bank, for example, will charge you just Rs10,000, no matter the amount you’re transferring). Factor this into your calculation while making the decision to switch.

Switch or stay?
If you’ve been a model borrower, your bank would likely not want to see you leave. So if you suggest that you wish to transfer your loan to another bank, it’s likely that they would give you a better rate. This rate might not be as low as another bank would offer you, but it would save you the hassle of changing (also, you can’t be sure of how good customer service will be at your new bank or of how the new bank will change interest rates in future). However, if the rate your bank is offering is nowhere near what a new bank is willing to offer you, switching would certainly have a huge impact in the long run. Here are the rates on offer currently:

Bank Up to Rs25 lakh Over Rs25 lakh Processing fee
Axis Bank 10.25% 10.65% Rs10,000
HSBC 10.25% 10.50% Nil
SBI 10.30% 10.50% Rs6,500
ICICI Bank 10.50% 10.75% 0.50%
Kotak Bank 10.25% 10.50% 0.50%
HDFC 10.40% 10.65% Rs5,000
IDBI 10.25% 10.65% 1%

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