My home loan interest rate has increased to 9.5% from 7.5%. Should I change my bank or stay with exiting one for reduced rate?

I have taken loan of Rs 45 lakh at 7.50% per annum under External Benchmark Lending Rate. Now they have increased it to 9.50%. Do the lenders have any discretion as to whether to allow a borrower to transfer his home loan to other banks? Can I transfer my home loan to any other lender?  

Reply by: Balwant Jain, a tax and an investment expert. 

Since you have taken a loan under floating interest rate, it is bound to change whenever there are changes in the external rate to which your home loan is benchmarked. Please read your home agreement carefully, there must be some provision for revision of the rates by the banker periodically in line with change in the benchmarked rate.  

Yes, you can transfer your home loan from one lender to another and the bank cannot stop you from doing that. You should explore the option of changing your home loan lender if you have maintained a good track record of repayment on the loan. Please note that your existing bank may have some restrictions on prepayment and the new bank may charge you processing fee. Moreover, this involves the modalities of handing over the property documents from your existing bank to the new bank.  So, before you actually transfer your home loan, approach your existing lender to offer you better rates which they may offer you looking at the probability of losing a customer. You may have to pay some processing charges for this purpose even to your existing lender.  

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On your request for transfer of your home loan the existing lender will provide a letter addressed to the new lender providing a list of original documents available with them as a security and agreeing to release the documents within a certain number of days after full payment is received. The letter will also contain an amount on payment of which the loan will be treated as fully paid off. You will need a track record of payment of your EMI’s in time as evidenced by your CIBIL score to be able to get good offer from another bank to take over your existing loan. 

All the original documents relating to property will remain with the bank till the loan is fully repaid. You can take photocopies for yourself or you can obtain an acknowledgment for the original documents submitted to the lender and taken by them in their custody in the form of a receipt. 

(Views expressed by the 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.)

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