Building your dream home is an overwhelming task that requires investing large amounts of your hard-earned money and time. Home Loans are a great way to ease financial stress when it comes to building your home.
The best way to get the most suitable loan is to research diligently, online, to find a bank or NBFC that offers a low rate of interest on Home Loans and an agreeable tenure. Also, there is another tip you can keep in mind to get a beneficial outcome from your loans—review your loan.
Reviewing Home Loans on an annual basis can help you save big bucks. Let’s see what this process is and how it helps.
What is Reviewing?
Reviewing basically involves conducting an analysis with the intention to change the terms and conditions of your current loan. When it comes to Home Loans, reviewing is the financial equivalent of going in for a ‘health check.’
In simpler terms, it is just a quick google search for the current rates of interest and establishing if you should continue with the current lender or switch to one offering a better deal.
When you apply for a Home Loan, you, as a borrower, have the right to switch your loan to a new lender through a process known as Home Loan Balance Transfer. People with existing Home Loans usually do this to avail of a loan with better features like low-interest rates and shorter tenures.
How to Review?
If you’re trying to figure out whether your current loan is benefiting you, here are some factors you must consider while comparing Home Loans.
- Rate of interest
The rate of interest is the most obvious feature to start your comparison with.
If your Home Loan scheme has a floating rate of interest and there is a noticeable change in the rates, the bank might extend your tenure while maintaining the same EMI. Eventually, you will end up paying a lot more than what you had signed up for.
A loan transfer would relieve you of this additional burden by providing you with significantly lower interest rates. The same applies for a fixed rate of interest as well.
- Home Loan Fee
With a Home Loan review, you can accurately conclude if your loan is overpriced or not.
Check out the offers by other lenders and determine if you need to switch to a different financier and save money over your loan. In case you decide to switch to a different lender, make sure the charges for loan transfer are worth it. The current lender will almost definitely charge a discharge fee for the transfer. This discharge fee is lower if you’ve been servicing the loan tenure for a long period of time. Before you opt for a transfer, ensure that all additional fees and charges will be worth paying for, if you do not have a lot of time left to repay the loan.
- Features offered by lenders
The relevance of the features your current lender offers might not be in tune with your needs. When choosing a new lender for your loan, check out all the features they offer. Over time, the terms and conditions that you were first offered might not be financially beneficial to you anymore. So, make sure you go through all the features the new lender has to offer and weigh the pros and cons before applying for the loan transfer.
Here are some of the key features you need to look for in new lenders.
- Redraw facility
This facility allows you to access extra payments in cases of unexpected financial crisis. If there’s a sudden financial setback or a medical emergency, the redraw facility serves as a solution. This facility allows you to borrow money you’ve already repaid with a variable rate of interest. This provision gives you the flexibility to repay the loan at your convenience.
- Offset Account
This feature allows you to invest extra money from your savings account to your Home Loan to reduce your monthly payments. Ask your new lender if they provide this feature to their customers. If they do, you can immediately link your loan account and your savings account to avail this benefit.
- Additional Repayment Facility
In cases where the rate of interest is fixed, lenders do not allow the option of making lump sum prepayments in place of EMIs. Institutions that do allow the payments tend to call for hefty fees to do so. It is necessary to look for a lender who does not charge a penalty and also gives you the advantage of making extra payments to end your loan tenure sooner.
Why Should You Review?
Reviewing your loan every year is recommended as it helps you clearly assess and identify ways to make the most of your loans and save as much money as possible.
If your bank or NBFC does not agree to rework the terms and conditions of your loan, you can always switch to a lender offering a lower rate of interest. Reviewing also helps in notifying you of the sudden change in the floating rate of interest that was set by your bank or NBFC.
The reviewing facility gives you the flexibility to choose a lender who provides benefits that are most convenient to you during your Home Loan tenure. This feature is especially helpful when you have a sudden medical emergency or any other personal financial crisis to see to.
If you are unable to make your payments in time, the lender has the right to seize your property and liquidate it for debt recovery. Solving this issue legally could take several years. To avoid such hassles, identify a financier who offers a redraw facility and transfer your loan to them, especially if it can prevent you from losing your property.
While most borrowers think switching to a different financier in the middle of your current loan can be quite a hassle, what they don’t realise is that you can save a significant amount of money every year by reviewing your loan and making an informed decision.
Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.
