With the Reserve Bank of India likely to reduce key interest rates, it is expected that banks will follow suit, resulting in a drop in home loan interest rates. This may be the best time for you to consider shifting your home loan to a bank which is quoting a lower interest rate compared to your current bank. The interest rate is the most important factor which should determine your decision on shifting the home loan. However, is it as straightforward as simply comparing the interest rate, or is there more to shifting your home loan from one bank to another? Let’s look at a few things to be considered and how exactly you should go about porting your loan:  

• Fees and Charges

1. The new bank generally charges you a processing fee when you want to open a new home loan account. Some public sector banks have waived this upto the end of March 2013, as a part of a special scheme. The processing fee is either a flat amount or a percentage of your outstanding loan. 
2. In addition to processing fee, you will also be required to pay stamp duty on the loan, notarisation and franking charges and insurance premium (some banks require you to compulsorily take a fire insurance for your house). 
3. All this adds up to a sizeable amount, ranging from 0.5% to 0.75% of your home loan. Do remember to ask these details from the new bank before-hand to avoid last minute shocks.

• Prepayment Charges: Banks no longer charge a prepayment fee when you foreclose a floating rate home loan. However, some banks still charge a prepayment fee on fixed rate home loans when you do a balance transfer to another bank. So find out from your current bank on the applicability of this charge, as this can be quite a substantial amount.
• Submission of documents: The new bank requires you to submit all property documents, along with a full Know-Your-Customer documentation. Most banks also require you to submit your income documents and bank statements as well. However, some banks waive this requirement if you have been regular in servicing the loan in your old bank.

How can you port your home loan?

1. Before you decide to port your home loan, research well on the interest rates of various banks for the amount of your loan. Banks generally charge a lower rate for loans less than Rs. 30 lakhs. 
2. When you find the best rate, enquire the formalities and procedures in the new bank. 
3. Let your current bank know your intention to shift the loan. Sometimes, your present bank may offer a lower rate if you pay a small fee, (called the conversion fee) which is generally equal to the processing fee charged by the new bank. If you still find the new bank’s rate attractive, get your papers and documentation ready. 
4. Once you submit the initial documentation, the new bank will take some time to process your papers, have the property surveyed and approved and get the agreement ready. 
5. In the interim, you may be required to submit documents regularly, as per the bank’s requirements. This includes payment of processing fees, payments towards stamp duty, franking and notary charges, fire insurance premium for your house (in some banks) and submission of property related papers. 
6. When the bank finds your application in order and after you have made all payments, you will be called to sign the agreement. 
7. After you sign the agreement, the bank takes about 3-4 working days to disburse your loan. 
8. The cheque will need to be verified by the bank’s lawyer and only then handed over to you. 
9. When you receive the cheque for the amount of outstanding loan, you must hand it over to your present bank at the earliest and request for the release of property documents. 
10. When you hand over the cheque, your present bank immediately stops charging interest; but will give you your property documents only after 7-10 days. 
11. On receipt of property documents, you must hand these over to the new bank. This completes the porting of your home loan.

A word of caution here – Some banks give you the cheque for the outstanding amount only 2 days after they disburse the loan, but will start charging interest from the date of disbursal itself.  This can result in you paying interest to both the banks for 1 or 2 days, as your current bank will release the property documents and stop interest calculation only after you hand-over the new bank’s cheque to them. Take all these factors into account when you decide to shift your home loan.                                                               #gettingyourich

Smitha Hari
Team GettingYouRich.com