HDFC hikes switching fee, for new customers only

New Delhi: There has been a lot of action on the home loan scene. First, the State Bank of India and LIC Housing Finance reduced the interest rates to 8 per cent and 8.75 per cent respectively for all its new home loan customers.

Reacting to that, HDFC Chairman Deepak Parekh went on record calling these rates a 'gimmick'.

HDFC followed that up with a hike in switching penalty to 3 per cent, compared to the 2 per cent earlier. This move was so that it could curb the exodus of new customers moving to other banks.

Where does this leave customers who were planning to make the shift?

Worry not. Officials at HDFC explain that the 3 per cent switching charge is applicable only for new customers. So, for those of you who have taken a home loan from HDFC prior to this news, will be charged as per what is already stated in your agreement.

Guidelines while switching your loan

So if that makes you want to shift your loan, go ahead. But remember these guidelines.

Home loan expert, Harsh Roongta lays down a few thumbrules to consider when you shift your loan. "Your decision to shift your loan to another bank should be based on the remaining tenure, the new interest rate on offer, prepayment fee and processing charge. However, remember the thumb rule: If you are getting even a half per cent reduction in interest rate, you stand to gain."

Let’s take the help of an example.

Let’s suppose that you have a loan with one bank at 10.5 per cent interest. The new bank is offering you a 0.5 per cent lower interest rate, that is, 10 per cent. The switching charge is 2 per cent to be paid to the old bank and the processing fee to the new bank is 0.5 per cent.

You are 3 years into your loan of 20 years and are now considering a shift.

Old Bank: Existing loan

• Loan amount
20 lakh
• Interest rate
10.5 10.5
• Tenure
240 months
• EMI 19,967
• Outstanding loan amount Rs 18,96,112

New Bank: New loan

• Loan amount 18,96,112 + Rs 47,402 (switching and processing fee)*
• Interest rate 10
• Tenure 204 months
• EMI Rs 19,847

• *The new loan amount will also include processing fee and switching fee, so instead of paying up that amount upfront you will be paying it through an EMI.

How much you save:

Amount saved due to lower EMI over the remaining tenure of loan: Rs 120 x 204 = Rs 24,480

Verdict: Switching your loan to a new bank is an attractive option.

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