Transferring thy home loan

A 'home' is most definitely, where your heart is! So, began the search, about a year ago, and yes, it was found. As is the case with the most sellers, this deal too had to be closed ASAP. So, being salaried that I am, I did not have the liberty of choosing the nationalized bank to borrow the loan from(read 'SBI').  So, it had to be a private firm (read 'HDFC'). The reason was obvious - unpredictable loan processing time v/s 15-20 days processing time.

So, loan was sanctioned @10.75% floating, EMI started and 8 months passed! Then came the usual culprits - new HDFC loans offered @ 10.5%, but my Rate of Interest was still the same. Ofcourse, I learned that the spread had to be bought to lower my interest rate, and it would come at a price (20,000 Rs). And hence my intelligence told me, that instead of buying the spread, it was time to move to my preferred nationalized banker (SBI), offering new borrowers @ 10.15% Rate of Interest. I was proud to make an intelligent decision back then.. but was it? Lets find out..

Lawyer, Property Inspection Charges: Rs. 4000/- approximately.
Processing Fees: Rs. 1000/- only (for loan transfer cases)

Was very happy, until now, but following are to be noted, in terms of SBI:

1. Equity Mortgage Agreement with SBI (Cost: 8300/- for me. Might vary).

          This is kind of an agreement with SBI on stamp paper (worth Rs. 8300/- for me), which states that your property will be mortgaged with the SBI, until you pay the entire loan amount back. 
          The thing to note, however, is that  other banks (eg: HDFC) does not have this procedure in place. When checked with HDFC, they say that the clause of mortgage is already present in the loan arrangement letter, and does not require any stamp paper agreement. If the borrower fails to pay, they, by default have the legal rights to take on the said property.


 2. Property Insurance Mandatory with SBI (One time cost of Rs. 21, 900/- for me. Might vary).
 
     Definitely, Property and Self Insurance is always recommended for one. However, just for all to know the difference: 

• In case of HDFC, Self and Property insurance is completely optional (though recommended). 

• In case of SBI, Self Insurance is optional. However, Property Insurance is mandatory.SBI needs to have any existing property insurance (which could be transferred), OR a term-insurance which is already in place. Failing which, the loan will not be granted. If you don't have one, you have to buy a very general pack (one time payment of Rs. 21,900/-).  

 3. Planning on the loan disbursement date
        Disclaimer: Ok, this is very chindi (on saving just a very few extra bucks).

• Even though not much control you could have on the nationalized bank on what approximate date, would the loan amount be disbursed, planning always helps. In my case: 
• My HDFC EMI payback is on 10th of every month (for previous month) i.e. On 10-Feb, I would pay my EMI for the full month of January. 
• Had my date of loan disbursement from SBI, been on say 3-Feb, on which I go to HDFC and pay back my full amount, I will end up paying: 
• Jan's EMI (eg: 36,000)
• Simple interest on the 2 days of February (i.e. from 1st - 2nd Feb, since I am making full loan pre-payment on 3rd). (Comes out to say Rs. 2400/- only).
• Now, since very wisely, I had selected 3rd of every month as payback cycle for SBI, next EMI due would only be on 3rd of March. 
• So, in effect I am EMI free in Feb month (except only for Rs. 2400/- bucks in my case). 
• However, the money that I saved (Rs. 36000 - Rs. 2400) for Feb, I will make a principal pre-payment to SBI in the month of April, which will bring down my loan amount (Why April? Simply from tax planning perspective).

4. Adhoc delays and very bad services

• Yes, it is very true. SBI employees are atleast 300 years old. You will have to visit the branch more than expected, and come back empty-handed, dissatisfied. 
• With HDFC loan processing, I had to take around two half-days off at work (i.e. one day). With SBI, I alteast took 5 full days off work (and people said that I was lucky).
• The SBI will call you and simply send you back, because they just can't handle things OR not in a mood to work today.
• The original property docs handling is also very lousy! Believe me, I could even snuck off  my original property documents, and they wouldn't have a clue! (They asked me to put everything in one folder, staple some, make entries in their registers which they should've, and hardly checked any kind of authenticity). 
•  You will have to visit the home branch twice a year to get that Income Tax certificate (One time to give the request, Second time to collect the paper, third/fourth time if the papers are not ready). No, they do not have this online. 

Everything said and done, still there are some good points, which makes all the trouble worth: 

• Lower rate of interest! Yay! 
• More prinicpal payment per month in your EMI (as against many other bankers).
• With SBI, you can use an overdraft account. This means that, you can make a pre-payment of say just Rs. 5000/- at end of the month. The EMIs will be adjusted accordingly. With HDFC, I had to make any prepayment more than my EMI (i.e. min more than Rs.  36,000/-). You can also take off the amount of Rs. 5000/- back and EMIs would be adjust accordinlgy. Helpful, in kind of emergency situations.

 Of course, I am no finance genius, but the above points will definitely help the other lay-man just like me, before he wishes to transfer his loan from one bank to another!