Transferred my loan recently from Deutsche Postbank(formerly BHW Home Finance) to Union Bank. This is an account of the experience and a few mistakes from the past that were given attention to.
Reason to Change
The rates went up with the market but never came down with the market. To bring it down you need to pay 1% of your outstanding amount! What this meant to my loan is that my loan tenure went up from 20 years to 26 years! When I did some math, there was this other bank where I can pay 20% extra EMI per month and finish off my loan in less than 10 years.
Finding a Bank
In the process of getting the loan changed, there were many banks we thought of. Here is a list of where all we went and why that bank was not continued with. Some banks were not even visited due to feedback from colleagues/friends who has a loan from there.
Not considered due to bad feedback.
ICICI – High interest rates for existing customers
HDFC – High interest rates and pre-closure charges
IDBI – Relatively much better feedback, but was scared by the reviews on above two as this too is perceived to be in the same league
In short, we felt it was better to avoid so-called new generation banks.
Good feedback, but we had certain difficulties
State Bank(SBI, SBT, SBM, etc) – They have enough business without much marketing or reaching out and hence are not very keen to be proactive. Not really an ideal situation for someone who doesn’t have a month to dedicate on a loan approval.
Bank of Baroda – Well-behaved staff and willingness to help. However, my house being less than 2 years old, they had certain restrictions on re-evaluating the property.
Corporation Bank – Every time you submit the bunch of documents they require, these people will come up with a fresh list. Still the old-world banker who thinks he is funding you from his pocket.
In short, a good place to start is by making a list of nationalised banks who are making an attempt to be customer-friendly.
Evaluating the Banks/Offers
Interest Rate: of course the number one concern. Look for anyone who is offering a competitive fixed rate for initial few years.
BPLR: Talk to your contact person at the bank and understand what their Benchmark Prime Lending Rate is. Also ask them if they have multiple PLRs(say, different ones for home loans). Also ask them how much high their BPLR(or teh PLR that affects you) has historically been from the RBI Repo Rate. Avoid the banks with multiple PLRs and a high home loan PLR.
Pre-payment: Find out how easy it is to make a pre-payment and upto what percent of outstanding you can make a pre-payment without any penalty. For example, there are banks that allow pre-payments via EFT from your online account and also allows you to pre-pay upto 90% of your outstanding in any year without charges.
Pre-closure: Find out what the pre-closure charges are, in the event that you are closing the loan before tenure.
Interest Calculation: Find out if the bank has a daily, monthly or quarterly reducing interest calculation. Most ethical banks have a daily reducing calculation(which means if you make an extra payment today you stop paying interest for it starting today – not starting the start of next month or quarter)
Considering the above facts, the bank that best suited my requirements was Union Bank of India. They have an 8.5% fixed interest for the next 3 years(floating thereafter), a single BPLR, pre-payment option through EFT and a very friendly and helpful bunch of people. All in all, I was pleasantly surprised to see how a bunch of inspired individuals can transform a nationalised bank! Please leave a comment if you would like to contact these gentlemen, and I would be glad to send you the details(Note: This is NOT an affiliate program).
Avoid Deutsche Postbank. They made it as hard as hard as possible for me to close the loan. They get into some unfair/unethical accounting practises to juice out that extra buck from you(like preparing the cheque earlier than you requested and charging interest for it and many more). They even charged me an extra month’s EMI after closing the loan and said it was by "mistake". Now making me run behind them to get my money back!