13 Hurdles to cross when you want to switch your home loan to another bank

February 2018


Be firm to your banker and convey your incapacity to visit the branch for closure and agree to all authorisation they may need.

When you realise that your current lender is not offering you the lowest rate available in the market or you need to switch your loan to another lender for some other reason, be sure of covering all the following aspects, as not knowing about these could jeopardise your plans and you may land up paying hefty charges.

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1. Ask for a foreclosure letter: Seeking this letter and been issued one to you is a proof that you have intimated your intention of closure of the loan with your current lender. As a resultant factor the lender gets an opportunity to retain your business by offering you a lower rate or a different feature that you might be interested in. So, not knowing what they want to offer may make you regret later. At the same time, the lender will not have an excuse of not to accept your closure amount, when the time comes stating it was not 'informed'.

2. Apart from foreclosure amount, it should mention daily interest: Sometimes the new bank takes a little longer to process and miss the foreclosure date. For example, if the letter states a due of X amount on November 30, 2017, the payment may get to reach the old lender on December 2, 2017. Now the interest of these two days are important. If there is even one rupee pending, the loan will not be closed. Hence, for the sake of calculating the exact amount on the day of closure, knowing the per day interest will help. Alternately, you can be prepared to pay this additional two days of interest from your own source of funds.

3. Check whether this loan is linked with any other: This home loan is associated and linked by the lender as a 'condition' to any other loan, then prepaying this may not release the title from the bank and that could be a big issue for the next lender. So, be very sure there are no strings attached. Here is an example, you took this home loan seven years ago and took another just a year back. While buying the second property you needed an amount which was not well-supported by the valuation report, and hence they considered the market value of the previous property, which is enhanced now and you have paid some principal already in last seven years, which made the second loan amount possible. So, both loans will be linked and one can't be closed.

4. Find out whether the co-borrower's consent is required: Some lender do make a lot of fuss and seek the signature of the co-borrower authorising the closure and sometime they even go to an extent of seeking a power of attorney from the co-borrower if he or she cannot be present in person during closure. Though it is not prevailing in most lenders and they accept the closure amount, no harm in being prepared as your co-borrower may live in some other city or may be traveling!

5. Do not forget to check on the process of transferring the original title papers: Although logically the original title should get transferred from one lender to the other, most lenders do send the documents back to the borrower. Losing the documents in transit is not uncommon and you need to know the tracking details when they do send by courier etc. Some lenders will insist that your personally visit their branch to collect the originals and you must know that it will be during your work hours causing you irritation. To top that, some lenders insist on visiting with co-borrower and failing which demand POA in favour of yourself to handover the originals to you. Better be ready.

6. Take an LOD again just to be sure all documents are safe: All MNC lenders issue the list of documents (LOD) soon after the loan is disbursed. But the private lenders do not issue any. In the first case, it is better to seek another one just prior to the switch, for above-mentioned reason. For the private lenders, it is better that you seek an LOD when you borrow and seek again when you are about to switch to make sure things are in same order.

7. Pre-plan a disbursement date with the new lender: Fix and discuss a date of disbursement with the new lender. You will avoid paying double interest in case you are traveling and the old lender is not accepting the payment from the new lender in your physical presence. These are just the tricks to make you feel frustrated and cancel your switch-plan, but be smart to decide on a date mutually with the new lender and close it on your own.

8. Inform the previous lender of the closing date in advance: In form of seeking foreclosure amount you have already given them a feel, but no harm in telling your relationship manager or co-ordinator in advance that you are coming on so and so date to close the loan. They will save themselves from the shock of loss of book volume and you will save a lot of time which they take harassing you and sending you from one counter to another.

9. Check for any pending amount from you: If there is any other charges payable, seek that information in advance and be ready to pay. Go with your cheque-book while closing the loan.

10. Do the previous lender accept closure amount from a third party: Sometimes, to avoid closing the loan a lender gets to these kind of activities and ask the borrower to come down to their branch, knowing you will not be able to make it. Surprisingly, the same lender never asked you to move out of your chair while extending the loan facility. You may not have time or intent to visit a branch, wait there in a long queue and you may want to send your office-boy or ask your loan agent to do it for you, but that may not be acceptable unless you have put an end to their expectation to meet you in person at their office. Be firm to them and convey your incapacity to visit for closure and agree to all authorisation they may need.

11. How many days will it take to close the loan after submission of the amount: Depositing the closure amount is not the end of your paying interest to the previous lender. Some lenders take 8-9 days to send the demand draft for clearance and show various futile clauses. Be firm in your instruction that they should bank the pay-order at the earliest and close the loan. Do not assume that they have closed it after you send them the DD.

12. When will you receive a ‘No Due Letter’ from the previous lender: In your busy work-life you will forget to get this one letter which may haunt you after five years when you want to borrow again. The lender might simply forget to post that information in credit bureau and you will not have any document to prove closure on that specific time. Going back to the earlier lender and making them change their report to credit companies will be tiresome and you may have lost good scoring opportunity by then.

13. What is the process of terminating the ECS: Almost all lenders debit your bank account for the EMI each month. There used to be a process of issuing post-dated cheques (PDC) but it is almost defunct now and ECS is issued. Remember to intimate your paying bank that you have closed down the loan (they may require the closure proof) to avoid paying EMI even after closure. This happens frequently as the previous lender forgets to pass on the instruction to their collections.

Hope the above input helps you to be better prepared.

Till then Happy Switching, Happy Foreclosing!!

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