When people need loans for various reasons they rarely
, if ever, think of their home as a ready source of finance. Traditionally, the bank ability (banker speak for the ability to raise money against the security of) of real estate in India has been extremely poor. In many cases, the home is already mortgaged with a housing finance company and hence seemingly unavailable as a source of further loans.
What most consumers don't realize is that if they have an existing home loan, which is more than two years old with an impeccable repayment track record they are actually sitting on a ready source of finance. Most banks today will refinance your existing loan and also provide a top off loan (banker speak for an additional loan) at probably the same cost as the regular home loan as well as for an equivalent tenure making it extremely easy on the pocket. In fact, if your existing loan has not been adjusted for the lower rates you may find that the additional loan comes without any extra burden. You will continue paying the same installment for the same balance tenure and yet receive an additional loan. Let us take an example. If you had taken a 15 year home loan of Rs. 5 lakh four years ago at the then prevailing rate of 13.5%, your monthly installment will be around Rs. 6492 and the outstanding loan amount after 4 years of repayments is around Rs.4.45 lakh. You can now transfer this loan to another bank at the current rates of around 7.5%. The new lender will not only take over your existing loan but also give you an additional loan of around Rs. 89000 while keeping the installment amount lower at Rs 5954 for the balance tenure of 11 years. You thus have a saving of Rs 500 every month The only additional cost you will incur will be a onetime fee that the new lender may charge you (this is normally waived for such transactions) along with any prepayment charges payable to your existing lender. Even if you deduct these charges from the top off loan the balance is a pure bonus available due to reduction in interest rates.
This is the closest to a magician's trick that the otherwise conservative personal banking industry in India will go to. However this magic will work for you only if you have maintained an impeccable track record of payment with your existing lender. So the next time you are a little lax with your installment payment think twice - a little magic may just go out of your life.