I have taken a housing loan from a private bank. My current interest rate is 11.5%. I came to know that the same bank is offering new housing loans at a lesser rate of interest. Banks like SBI are also offering new housing loans at lower rates. Is it possible for me to take a new home loan at a lesser interest rate and prepay the old loan? If yes, what is the procedure? How much will it cost me in terms of processing, penalty etc?
—Shah Nawaz It is advisable to transfer your existing loan to any other bank in case they offer you a better deal in terms of interest rate. There are two major charges which need to be taken into consideration while transferring the loan. The first is prepayment charges, which are at present payable on fixed rate loans and on dual rate loans. And second is processing fees, which you will have to pay to the bank where you will transfer your loan. This will be in the range of 0-0.5% of the loan amount. Some of the lenders have waiver offers on processing fee periodically for a certain period or capping it at a fixed sum irrespective of loan value. This decision also entails the modalities of handing over the property documents from your existing bank to the new bank. The existing lender typically provides a letter addressed to the new lender providing a list of original documents available with them (in terms of security). In the same letter the existing lender also agrees 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 EMIs in time to be able to get an offer from another bank to take over your existing loan at better rate of returns.Check with your existing lender if they are willing to drop the rate for you on payment of a fee, which will save you a lot of hassles. . What is a composite loan and how is it calculated. How does the bank disburse this loan? What documents are required to avail a composite loan
—Shashi Goenka A composite loan is a loan taken for self-construction of a house. The loan is given to finance cost of land as well as cost of construction of property on the plot of land. The banks will require documents in respect of proof of income, identity, residence for the home loans and documents relating to title of the property being purchased. You will have to submit an estimate of the total cost of construction, certified by an architect/civil engineer. The cost of the plot to you or the current market value, whichever is lower, will be taken into account to work out the total cost of the project provided you commence the construction within a rea- sonable time after purchase of the plot.
The bank will determine the home loan amount based on the total cost comprised of construction cost and cost of the plot. The loan will be released in parts, based on the progress of the construction, and after you have brought in your full contribution. Please keep in mind that some banks are not comfortable funding self-constructed properties and hence, you will need to take that this into account while finalising your lender. Harsh Roongta is CEO, Apna Paisa. He can be reached at email@example.com