3 reasons to change mortgage lenders

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In order to save money, don’t jump ship in a hurry. Here are the ideal situations in which to change your lender would actually make financial sense

A home loan balance transfer means switching lenders and moving to a new lender who offers you either a better interest rate or better terms. With the interest rate at a ten-year low, many borrowers of existing home loans are often tempted to make the switch.

With rising mortgage rates on the horizon, many are likely to jump in haste, so as not to miss the window. However, this is the wrong approach and it can land you in a financial soup. Here are the ideal situations in which switching your mortgage lender makes more sense.


Opt for home loan balance transfer


If you have improved your credit score

Interest rates on home loans linked to
eexternal benchmarks or MCLR scheme, are a sum of the underlying external benchmark such as the pension rate. The practice of risk-based pricing has led many lenders to charge a lower spread or credit risk premium (CRP) to applicants with better credit profiles. Some of the factors considered when setting the credit risk spread and/or premium include applicants’ credit score, occupation profile, monthly income, and employer profile (in the case of salaried candidates). Thus, existing borrowers, who have benefited from higher spread/CRP home loans but are now eligible for lower rates due to improved credit profile, can exercise a home loan balance transfer.

If you are still in the first part of your loan term

EMIs for home loans are the sum of the principal and interest components. NDE during the first years of the term of the loan consists mainly of the interest component. As the tenure progresses, the proportion of the interest component is gradually replaced by the principal component. Thus, opting for a transfer during the early stages of the loan term would result in greater savings on interest charges.

However, keep in mind that the loan term chosen for the transferred home loan must be the same as the remaining term of the original home loan. As the lengthening of the term of the loan increases the overall cost of interest to the borrower, which blunts the main reason for this change. Go for a longer term only if you want to reduce your EMI load. These borrowers should aim to make prepayments later to reduce the overall interest cost.

If the current lender refuses to sanction the additional home loan

Complementary home loans are offered to existing borrowers with a satisfactory repayment history. This loan facility has no end use restrictions and is generally offered at much lower interest rates than other alternatives such as personal loans, loans against titles, etc. Some lenders attempt to encourage home loan balance transfer options by offering complementary home loans.

Thus, existing borrowers who are unable to avail of the complementary home loan facility from their current lenders or who are charged higher interest rates for complementary loans can transfer their home loans to other lenders and simultaneously benefit from additional home loans.

The author is the home loans manager at Paisabazaar.com.
The opinions of the author in this article are personal
Source: Times Property

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