How to Transfer a Loan from One Lender to Another?

In 2019, the RBI went on a repo rate reduction spree, reducing the repo rate every two months bringing it to an all-time low at 5.4 percent. RBI further asked the private and public sector banks to reduce their home loan rate that will help in passing the benefit of the reduced repo rate to the home buyers. Since the banks only change their interest rate quarterly, it is expected that this year the home loan interest rates will reduce further.

The homebuyers who are sitting on fence waiting for the right time to take the home loan can take a step towards it. The homeowners who are already servicing home loan can also change their loan lender if they wish to move to the lender offering a lower home loan.

There can be many reasons apart from the better interest rate to change the lender. A borrower may want to transfer the loan if they want the top-up loan on the existing loan and the current lender is not wishing to grant the same.

Process of transferring the home loan

To transfer the loan, the current lender needs to be paid in full, but the new lender will not release the payable amount unless the original property documents have been received. The borrower can ask the existing lender to issue the letter to the new lender. The letter should mention the outstanding amount, the property documents lying with the existing lender, and the undertaking that the existing bank will hand over all the documents to the new lender once the payment has been received.

The new lender will treat this as the new loan application and will do all the necessary due diligence before approving your home loan. The new lender will also look at your credit score and payment history to know about your repayment capabilities.

Charges involved in transferring the home loan

When changing the loan lender, you may have to pay charges applicable for the facility to both the lenders. The existing lender may levy prepayment charges on the home loan. It is important to note that banks and financial institutes are not allowed to levy charges on prepayment of the loan in case of the floating interest rate. If the borrower is prepaying the home loan from their personal fund then the banks cannot charge the borrower, even if they have a fixed rate of interest.

 

The borrower will have to pay the new lender the processing fees which can be anywhere between 0.25 personal to 0.75 personal. Depending on the customer, the bank may also waiver the fees to a nominal amount. It is important to remember that since the new lender will treat it as a new loan, you are bound to pay for registration charges and stamp duty.