Is a lower interest rate the only reason for you to switch your home loan lender?
Home loans are one of the main loans that a lot of people seek out. They are actually pretty easy to understand if you think about it. Every major bank and many independent lenders offer home loans, so finding the best deal should be simple.
If you need a loan, you should have an idea about what type of home loans fit into your financing plans.
If you’re looking for a home loan, you’ll be able to better evaluate which lenders are most likely to help you.
Home loan buyers may easily compare rates and terms in the online age but it’s good to know where a lender stands on fundamental issues before getting information through your lender.
However, the home loan process can seem to be pretty complicated at first. To get your head around this amazing world, read on for some tips and information that will help you in making an informed borrowing decision.
You need to consider several factors before choosing a specific loan and signing up for its policy. These include checking for different interest rates, tenure of repayment, and much more.
For example, suppose you have taken a home loan and find other lenders that offer lower interest rates; though this looks enticing enough for you to switch your loan lender, it might not be a wise decision.
Of course, low interest rates alone look like a good factor for increasing your savings, but the reality might be quite the opposite. Hence, you should also consider the following factors before switching your loan lender.
A low interest rate is good for borrowers who need to take loans but bad for savers who want interest on their money. It’s also bad for banks that lend the money. If you’re a bank, you want your savings deposits to earn a higher return than loans.
A low interest rate basically means that people prefer wallets over bank accounts – they would rather hold money than lend it.
Do you qualify for a loan transfer?
Unlike what it looks like, loan transfers are not that simple. First, you have to check your credit rates to understand if you qualify for a loan transfer.
A loan transfer is basically like a second loan that you are taking where the new loan lender pays off the pending loan amount to the previous lender while you pay the EMI to the new lender at the new interest rate.
However, if your credit has decreased over time since you took your first loan, you might not qualify for a loan transfer.
Calculate your interest rate
It is often believed that the transfer of loan lenders can be beneficial in the initial years of taking a loan. This is because the interest payments are higher at the beginning.
Thus, if you come across lower interest rates in the initial years, a switch might be helpful.
However, this might account for your loss in the middle or end of the tenure, the reason being in all possibility you may have finished paying the higher portion of the interest to your previous lender.
You can use a home loan calculator to have an accurate understanding of the same.
Calculate additional expenditures
There might be many additional expenditures based on the policy of your loan. These might take the shape of a penalty or charges for closing the deal earlier.
For example, suppose you come across lower home loan interest rates, but there are charges incurred upon transferring the loan. Some banks or companies generally charge 1% of the total loan amount as transfer charges.
In such cases, you might tend to lose more than you save while transferring your loan!
A low interest rate might also mean more significant formalities, collateral, paperwork, etc.
As a result, changing your loan lender just based on a lower interest rate might cause serious trouble for you whereby you. You would have to furnish and sign a whole set of new documents and go through a range of formalities and take time adjusting to the policies of the new loan lender.
Are you ready to spend so much time and effort? Think about it!
Low interest rates can be a boon but not sufficient as the only criterion for changing your home loan lender. Such a switch might be beneficial only when you are at the initial phase of your loan.
Low interest rates are like anything else you crave: If they are available to you too easily, you end up taking them for granted and wasting them.
However, there’s a lot more that you need to consider while making your choice. For instance, you should use a home loan calculator and an EMI calculator to increase accuracy.
If you find all the factors working in favour, you can, of course, go ahead and opt for a shift.