Tuesday, July 26, 2016

Look beyond interest rates before switching your home loan

With so many comparison sites around, it is no longer difficult to find out who is offering the cheapest mortgage rates. If you are already servicing a home loan from a Bank or an NBFC, you might find that you are not getting the lowest home loan interest rates offered in the market and it becomes quite tempting to switch the loan and take advantage of low rates offered by others and thereby reduce your EMI or tenure. 

But switching your home loan just because somebody else is offering lower interest rate is not a wise decision and can lead to lot of harassment and can even turn costly. Following are the 3 things you must consider before deciding to switch you mortgage provider.

  • Make sure the interest rate differential is at least 0.5% if your loan is outstanding for 10 years or more. Lesser the repayment time left higher must be the difference to compensate for the cost associated with changing your mortgage provider. If repayment period is more than 15 to 20 years, then even a 25 basis points (0.25%) reduction could result in reasonable savings on interest payment over the tenure. So an individual needs to take a call based on his / her circumstances.
  • Negotiate with your own provider. Due to massive competition in the mortgage market, there is a high likelihood that your existing financier could reduce the rate to avoid losing on to the competition. This could also be used as an indication that if your mortgage provider is not reducing the rate on your existing loan in spite of your willingness to switch, there is not much gain on the table for you as well.
  • If you have defaulted few times in the past or delayed EMI payments, the lender might refuse you to refinance. The lender would consider a host of factors before disbursing you the loan. One of them is your repayment record with the previous lender. In case of loan for the property under construction, your new lender might not consider giving you loan if the construction on your home is running behind schedule.
All these factors need to be considered before shifting a home loan to another lender.

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