I’ve taken home loan from a prominent bank (10.25%) for a property in August last year. I’ve opted for a balance transfer with another bank in January for lower interest rate (10.1%). When I asked the bank for a foreclosure letter, they included loan origination charges of around ₹ 35,000 in final payment. When asked, they reverted that since you are closing the loan in less than a year of sanction, these charges are mandatory as it’s on pro-rata basis of interest making up to a year. Is there a way to cancel/nullify those pre-penalty charges?
— Rakesh Kumar Asking for any charges under any pretext (whether as reimbursement of so called origination charges or otherwise) is not allowed if you have taken a floating rate loan. It is quite possible that your loan is from the housing finance arm of the bank and not the bank per se. If so, you should go to their website and file a grievance on the email marked therein for grievances. In your grievance, provide full details of your loan and make it clear that charging of this amount is tantamount to charging pre-payment charges which is not allowed under NHB regulations. If the issue is not resolved within 30 days to your satisfaction, you should file a grievance with NHB at the address indicated at the www.nhb.org.in website. You are sure to get relief so go ahead and send out these emails. I have a fixed home loan rate of 11%, should I switch to floating rate? There is a conversion fee of ₹ 70,000. I have completed 36 months so far.
—Swati Nath Current (January 2015) competitive floating rate in the market for home loan amount of up to ₹ 75 lakh is around 10.15%-10.25% per annum and is expected to go down further. It would make sense to switch your loan to a lower floating rate of interest if the lender is offering to do the same at a fee. The cost and benefit analysis of savings in EMI and the switching charges will help you in deciding whether it is worth switching to the new interest rate slab.
If the lender is not willing to reduce the rate of interest to 10.15%-10.25% per annum, you can evaluate the option of switching your loan to other lender.
There are two major charges, which need to be taken into consideration while transferring the loan. The first is prepayment charges, which are presently payable on fixed rate loans and on dual rate loans only. And second one 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 certain period or capping it at a fixed sum irrespective of loan value. These two costs viza-viz saving in the interest over the balance loan tenure will help you decide if you want to switch your loan.
Moreover, this involves 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 as a security and also 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 to be able to get an offer from another bank to take over your existing loan at better rate of returns.