With a rise in mortgage rates on the horizon, many are likely to take the leap in a hurry, 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 when switching your mortgage lender makes more sense.
Opt for home loan balance transfer
If you have improved your credit rating
Interest rates on home loans linked to
eexternal benchmarks or
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.
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 try 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