New Delhi, Ankit Kumar. If you have a home loan going on and you are thinking of transferring it to some other lender, then you must have many questions running in your mind. For example, what is its process or how much does it cost etc. In this latest issue of Jagran Money Mantra, we discuss this issue in detail with tax and investment expert Balwant Jain. Jain said that while transferring the home loan, the most we should keep in mind is the reduction in the total cost of the loan. Edited excerpts from this conversation are as follows:
Question: Why should any person transfer home loan?
Balwant Jain: If a person is running a home loan in any bank or NBFC, then he should keep in mind the interest rate going on in the market. If he feels that other lenders are giving loans at a rate lower than the interest rate at which he is paying the loan, then he should consider getting the loan transferred. This is because a home loan is a long-term liability and even a small difference in the interest rate can make a big difference in the total amount you deposit.
- Second, many a times, we take loans from non-banking finance companies at higher rates due to non-completion of income documents or due to lack of complete property documents or low eligibility while taking a loan. The reason for this is that then we don't have much choice. But after paying the loan on time for two-three years or after getting the required documents, we should think about transferring the loan to reduce the total cost of our loan.
Question: What things should be kept in mind before getting a home loan transfer?
Balwant Jain: If a person is thinking of getting a home loan transfer, then he should keep in mind that there is no penalty payable on the prepayment of the loan from the bank from which his loan is going. As per RBI guidelines, banks cannot charge any fee for prepayment or repayment. NBFCs may levy these charges in certain cases. At the same time, if you have taken a loan at a fixed rate, then banks can charge you prepayment or repayment charges. So you have to keep in mind the cost of prepayment or repayment of the loan.
- Apart from this, you also have to consider the processing fee involved in the transfer.
- You should also consider the total tenure of your loan. If you have a long term loan left, then you must get the loan transferred. But if there is only a short tenure left and the cost of loan transfer to you is more than the savings from the reduction in interest rate, then the whole exercise is of no use.
Question: What kind of tax exemption is available on transfer of loan?
Balwant Jain : Income tax exemption can be claimed under section 24 (B) of the Income Tax Act on the processing fee paid to the new lender for transferring the loan and the prepayment charge to the old lender.
Apart from this, under Section 24 of the Income Tax Act, if you transfer the loan for the first time, then the second loan is also treated as a home loan.
Question: What is the process of getting home loan transfer?
Balwant Jain: See, the main reason for transferring home loan is because your old lender is charging more interest. In such a situation, when you see that many other lenders are giving loans at low interest, the first thing you should do is contact your lender. You should tell your existing lender that I have to transfer the loan as you are charging high interest. In such a situation, it is possible at times that the existing lender can offer you a better rate for some charges.
- If the bank does not offer a better interest rate, then you tell them that 'I want to transfer the loan, give me a certificate of liability'. The bank gives this document within a few days. You have to show this letter to the new lender. The new lender prepares a check or DD of that amount and gives it to the old lender and takes the property papers from him. All you need to do is sign the documents of the new lender and provide the documents related to KYC.
Question: What is the cost of this whole process?
Balwant Jain: As I mentioned earlier, if you need to pay any prepayment or repayment charges or you have to pay processing fee, then you can consider it as an expense. In many cases these things are forgiven. You may only have to pay stamp duty and professional expenses etc. However, many times these charges are waived off during the festive season. Hence, this cost may vary for different borrowers.