Switch over or Balance transfer of Home Loan means you can switch the loan amount from one bank to another. If you are facing the problem of the high rate of interest charged on your existing home loan, whereas other banks are charging a lower rate of interest, you may prefer to close your account with the bank with whom you are banking, to avail of the loan from the bank offering reduced rates of interest. Instead of pre-closing the loan account where you have to pay ore-closure charges, you can avert the problem by choosing a balance transfer option wherein your present loan outstanding will be transferred from the existing bank to another bank. However, a housing loan balance transfer may seem to be a beneficial option, but you need to weigh in the below factors.
The balance transfer process involves processing fees, application fees, administration charges, inspection fees, among others. There will be some charges which will be charged by both your existing and new lender. Calculate if the cost of a balance transfer is less than your interest amount. Also when you’ve chosen a lender for a balance transfer, make sure you read the terms and conditions carefully to avoid any hidden charges. Make sure you know what the new bank has to offer in terms of loan benefits.
In order to ensure that their customers do not approach other banks for availing of reduced interest rates, banks may allow you to switch from base rate to MCLR / to external benchmarks such as the repo rate, within the same bank. Banks may also allow you to change the fixed rate to the floating rate of interest. This will allow customers to switch over from a higher interest loan to a lower interest loan by paying a switch over fee which is lesser than the pre-payment charges. It makes sense to switch if the difference between what you are paying and what the bank is offering now as MCLR/RRLR is significant.
