I have a 15-year home loan. Can transferring it to a bank help me save on interest?

I have taken a home loan from a housing finance company. The balance tenure is 15 years. How can I transfer my loan to a bank? Would it help me reduce the interest rate?

Reply by: Balwant Jain, a tax expert

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It is always advisable to transfer your existing home loan to a bank if they offer you a better deal in terms of the interest rate. However, before proceeding with this decision, it is important to understand the costs involved. There are two major charges associated with transferring a home loan.

The first is the processing fee, which you will have to pay to the bank where you transfer your loan. This varies between 0.5% to 1% of the loan amount.

Some lenders periodically offer waivers on processing fees if the loan is processed during a specified period, while others cap it at a fixed amount, regardless of the loan size. Conducting a cost-benefit analysis—comparing the total expenses involved with the potential interest savings over the remaining loan tenure—will help you determine whether switching your loan is worthwhile.

Please note that transferring a home loan involves the process of transferring property documents from your existing lender to the new lender. The existing lender typically provides a letter addressed to the new lender, listing the original documents held as security.

This letter also includes a commitment to release these documents within a certain number of days after receiving the full outstanding payment. Additionally, it will specify the amount required to fully settle the loan.

To be eligible for a loan transfer, you should have a good track record of EMI payments on your existing home loan. This increases the likelihood of another lender offering to take over your loan at a better interest rate.

Since banks must follow RBI guidelines on interest rate calculations, they tend to be more transparent than housing finance companies. Banks also adjust interest rates more quickly than housing finance companies, especially when rates are declining.

Before approaching a bank, check with your existing lender to see if they are willing to lower your interest rate in exchange for a fee. This could save you significant effort and costs.

(Views expressed by the tax/investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)