Factors To Consider Before Switching Your Home Loans
If you have already borrowed a home loan, in all likelihood, and now you are finding yourself burdened with increased equated monthly installments (EMIs) or with a longer loan tenure period of this finance. With every passing day, when it becomes typical to manage your funds and squeeze your EMIs in your planned budget, then you can choose to switch your home loan.
Interest rate should be the basis of your decision, while planning to switch home loan. With lower interest rate your savings will be more substantial. If you consider a switch, then, make sure it is at least 1-1.5% lower, which could make a difference to your total interest outgo, which you pay currently.
Cost: You definitely cannot overlook the costs when planning to switch a loan because you need to pay a charge to both of the banks or financial institution in the form of prepayment penalty and processing fee. The prepayment penalty is usually ranges from 2 to 4% of the current outstanding loan amount, while the processing fee lies between the range of 0.5 to 1% of the loan amount.
Time: Another important parameter is to decide the time, when to switch. In the initial years of the loan, you pay more towards the interest component. And, vice versa is applicable at the end of the loan as the money goes toward the principal part. So logically, it is better to switch your home loan in the initial years.
Of course, switching is a critical decision to make and will also need your time and effort rom figuring out whether it works for you. All of this procedure requires the gathering your documents once again, cancelling the post-dated cheques given to the earlier bank to signing new ones for the new lender.
