To Shift Or Not To Shift Lenders – That’s The Question

In this age of stiff competition among lenders, each one of them makes an effort to bring in a difference. An interest rate differential is one such example that we could use. This factor surely plays an important role in your equated monthly instalment (EMI) payment and hence, in your choice of lender.

As interest rates vary from lender to lender, an existing borrower is lured to shift to a lender who quotes a lower interest rate than what she is currently paying.

Home loans are long-tenure loans and typically large ticket size. When a lending institution offers you an interest rate differential, you will consider shifting your loan to that specific lender. But is that the right step? Does it always make sense to shift lenders?

You surely need to give it a thought before you take any decision. And the crucial points to consider here are:

Cost
The cost you will incur is the processing fee charged by the new lender, which could be a flat amount or a percentage of the loan amount. In addition, some lenders may also ask you to get your property documents verified by a lawyer, at your own cost. A one-time stamp duty will also be payable as a percentage of the loan amount.

Process
The process includes submission of two key documents to the new lender. These are:

1. A letter that details the list of documents currently held by the existing lender and the amount that will be considered as full and final payment.
2. No-objection certificate from the builder or society.

However, interest rate differential should not be the sole factor behind shifting. Other factors you need to consider are:

Calculating the total fees and charges that you need to pay to the new lender.

Checking if your balance loan tenure is worth the shift.

Checking the outstanding loan amount. If this is low, avoid shifting your loan.

Reading all the terms and conditions of the new lender. Do not fall for an offer just because of the frills associated with it.
Sometimes, negotiating with the existing lender can help you save a penny. On the other hand, changing your lender in a hurry may also cost you a pound. So consider all the pros and cons before you take a decisive step.

About the author: Satish Mehta is the founder and director of Credexpert, a credit and debt counselling company in India.