Switching between loan providers is not a new thing. There are plenty of reasons why people change lenders. This can be beneficial in many ways and that’s why people are opting for this shift. While switching, you must settle the pending amount with the previous one. Later, you can join with the new loan provider to start paying off the remaining EMI.

Reasons to switch lenders 

Borrowers always look for ways to find low-interest rates. For a home loan, getting fewer interest rates is a boon. This is substantially a good option to make savings while paying off the loan. This is one reason why a switch between the lenders is prominent. The present lender can give higher interest rates than the new lender.

However, there are switching costs involved. This eventually gives a better tenure than before as the interest rates are less. Hence, the switching costs are not a matter of concern for borrowers.

When to switch

All banks revise the interest rates for home loans once in a year. For example, if you applied for the loan in February of this year, the interest rate will change in the upcoming year of the same month. This is released by the bank. So before you make a switch, check the interest rates. You can calculate and compare the loan amount with the new interest rate and with the one that is given by the bank.

If you think the new lender is better than you can go for the switch. There is a processing fee as we saw earlier. This will be given by your bank. Usually, it is 1% of the loan amount. It is essential to settle the entire remaining loan amount to the previous lender before switching. Hence, make sure to make a switch only when you know it’s worthy.

Is this necessary

As of 1st April 2016, all the home loans are linked to the Marginal Cost of Funds based Lending Rate (MCLR). This is low as it is based on the marginal rate given by the bank. If you have taken the loan before this, you might be paying the interest rate given by the bank. This may be higher than the MCLR. You can go for a switch in that case.

You can switch in two ways. Firstly you can switch within the same bank who’s providing the loan. This can be done from the current interest rate to the MCLR rate. Otherwise, you can relieve yourself completely from the present bank and go for another bank with MCLR.

Precautions

As the MCLR is subject to change, if it is raised by the government in the future then it may be a problem. It is recommended to opt for a switch when the tenure of the loan is also high. A switch will make a difference if the remaining loan amount is high. Also switching constantly is not a good idea.

Ensure to consider all these factors carefully before going for a switch. The lender should be beneficial to the borrower.