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How I transferred my home loan from LICHFL to SBI and saved 12 Lakhs!

In this edition of "reader story", Ravi Kiran describes his experience of procuring a home loan from LIC Housing Finance (LICHFL) and then transferring it to SBI, thereby saving over Rs. 12 Lakh in interest.

UPDATE: MD and CEO of MF Utility, V Ramesh will be joining Ashal and me at the PUNE DIY Investor meet on 26th Feb. Registration link below.

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Dear freefincal readers, I am Ravi Kiran, working as School Asst. in Education Dept. Govt. Of Andhra Pradesh…. Would like to share my experience of Housing Loan Process…

2013 February

My wife also works in the same Dept. like me and we had a decent income also a pay revision was due to us. So I wanted to have a home of my own. I searched and sorted out a ready-made house. As I had no surplus funds and time to construct a house on my own I preferred a ready-made house. I made an agreement with the seller for ‘ X ‘ amount and approached one of the branches of SBI in my town to have 22 lacs of housing loan. The rest of the amount was obtained via personal loans from relatives.

The manager at first enquired me about my background, accounts, assets liabilities and finally told me to fulfil the following requirements.

  1. Form 16 for 2 years
  2. Latest 3 months salary slips
  3. PAN card, Address Proof
  4. Legal opinion from Two lawyers from SBI panel
  5. An Engineer’s Valuation from SBI Panel.
  6. 5% franking for mortgage statements i.e., 10000/-
  7. 500/- Stamping charges for agreement with SBI.

I approached the panel engineer, paid his fee of Rs. 2500/- and got a valuation for Rs 28,00,000/-

One fine day my wife and I approached the bank manager and submitted all the documents, valuations, legal opinion.

THE DRAMA BEGAN HERE.

The branch had a limit of 20,00,000/- for home loans. So the manager had no authority to sanction my loan. He tried to compel me to take 20 lacs only. As I had already had personal hand loans, and not in a position to get any money from anyone else, I requested him to pursue and sanction 22 lacs as the loan. I had a decent salary to pay the EMI even for 30 lacs. He postponed and wasted 30 days of valuable time in the name of processing the application with authorities. Meanwhile, the agreement time had approached. One fine day he told me that he had forwarded the application to the regional business office (RBO) so it was not in his hands to sanction the loan. The RBO officials of my city valued the house for just 10 lacs and finalised the loan amount as 8 lacs….where the market value was nearly 30+.

I could neither take the loan nor go anywhere as the time was short to register the house. So I asked them to give the 20 lakhs which they offer at first. But the inefficient manager, who was unable to compel the authorities to sanction the loan for a salaried couple who were with SBI for the past 9 years, who could pay the EMI easily, simply said: “ As RBO once rejected your proposal, I can't do anything except giving 8 lakhs proposed by RBO”. I was blank.

I paid nearly 20000/- for lawyer and engineer and stamping and all of that could go waste.

2013 APRIL

I approached LICHFL. They agreed to sanction the loan. Took 30000/- for various expenses. Sanctioned the loan of 22,00,000/- at 10.95% fixed for 10 years, which I opted myself, as floating rate of interest was very high after first 2 years.

2016 October.

By this time I had paid more than 40 EMIs @ 21098/-. I paid 1150/- to LICHFL and got the interest rate reduced to 9.85%. As the RBI cut the rates now and then housing loan interest rates slashed to a multi-year low. Again LICHFL asked me to pay another 1150/- to bring down the rate to 9%.

2016 December

Our P.M. announced demonetization and all the banks were flooded with cash flows, SBI interest rate became very attractive for me. Meanwhile, during these three years, I followed freefincal calculators and AIFW FB group and learnt a lot about Financial Management. So I was waiting for the opportunity to move to SBI MAXGAIN.

Migration from LICHFL to SBI MAXGAIN

At the end of December 2016 my Outstanding balance in LICHFL was around 20,00,000/- by January 10th of 2017, it was 19,90,000/-. I received several phone calls from various money lending institutions offering Personal Loans, car loans, credit cards etc., post demonetization. I also heard that SBI was also advertising for customers to sanction loans. So I just wanted to give a try.

First I tried to figure out how much I could save by shifting from LICHFL to SBI post all the expenses. Punched the numbers in calculators available in freefincal, switchme.in and in some other websites to figure out the savings and notional cash at the end of the tenure… It was around 12 lakhs. I took a decision to move.

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Author note:  Here is an illustration of the savings from reduced interest outgo. This savings is not immediate but over time.

You can use this home loan transfer calculator if switching like Ravi: From one tenure/EMI to another tenure/EMI.

If you either keep the EMI the same or the tenure the same, you can get more insights like, how soon the loan can be closed if the interest savings can be used to pre-pay or the corpus that you can generate if the savings are invested with this sheet: Home Loan Transfer Calculator: Base Rate To MCLR Switch. Now back to Ravi.

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Contacted the SBI Branch Manager for taking over. The present manager wanted the following:

  1. Outstanding Balance statement from LICHFL Original
  2. Last one-year payment statement Original
  3. List of documents Original
  4. Registration Papers Xerox copy was given to LICHFL and other documents supporting the previous owners of the said plot/ property
  5. House approval plan Xerox given to LICHFL
  6. House tax and water tax receipts or notices
  7. Form 16 for 3 years
  8. Salary slips for the last 3 months
  9. Adhar, PAN, Cancelled Cheques, 2 Photographs
  10. Legal Opinion and Engineer’s valuation

25.01.2017

At first, I contacted the Engineer for present valuation of my home and explained how I lost money in 2013 with SBI and why am I moving to SBI again. I showed the 2013 valuation Original ( glad I didn’t tear it) to him.He was sympathetic and assured that he could do his best and help me shift.

He immediately sent his assistant to take the measurements of my home and some photographs of me in the home…

In the evening I contacted the Lawyer for Legal Opinion and explained the same. He felt very sorry for what had happened and he also assured to help for the takeover. Collected the Original 2013 legal opinion and Registered deed Xerox of LICHFL, house tax receipts.

26.01.2017

I got the valuation report from the Engineer for 3500/- and he asked me to come for any help in this issue. He also assured me to recommend to another branch if I was unable to make it.

28.01.207

By the evening I got the Legal Opinion from the Lawyer. He didn’t charge me anything except for the ECs as I lost money in 2013 and he introduced me to another branch in the city and requested them to treat my loan as his personal housing loan. I will always be grateful to him.

30.01.2017

Went to the bank and filled the application form, given cheques and other relevant documents. They checked our CIBIL scores and satisfied. An assistant of the field officer visited my home and completed KYC. The manager told us to visit the branch the next day.

The following documents were given for takeover.

  1. Engineer’s valuation with approved plan
  2. Lawyer’s legal opinion with House tax receipts and ECS
  3. Form 16s and Salary Slips
  4. 6 cheques
  5. Franking on mortgage papers of 0.5% of Loan amount i.e. 10000/-
  6. 500/- stamping on agreement papers with SBI…

31.01.2017

Went to the bank in the afternoon. Got some agreement papers to be stamped for Rs. 500/- and handed over to them. 10000/- Franking been done on mortgage form and handed over to them. By the evening they gave me a cheque of Rs. 20,00,000/- in favour of LICHFL. I was astonished. The sincere effort I never expected from SBI Staff. I am very much thankful to the Panel Lawyer, who introduced me to these wonderful people. I said a heart felt thanks to them and took leave and didn’t take the cheque as it was a Tuesday. I requested them to give it the next day i.e. on Sree Panchami, a Wednesday.

01.02.2017

Went to bank around 11.00 am. I felt as though they were eagerly waiting for me as I was honest in my words, praising their sincerity and dedication to SBI. Taken the cheque and given to LICHFL. A balance of 1654/- was paid in cash. Closed the account. Took the Account Closure Intimation letter and Receipts and given to SBI. I was also given RINN RAKSHA insurance policy premium as the loan.

Migration expenses are as follows.

  1. Lawyer 00
  2. Engineer 00
  3. Stamps 00
  4. Franking 00

My new EMI commences from 05.02.2017 which is @ 8.80% with SBI for 12 years tenure against 9.85% of 19 years tenure in LICHFL.

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Ravi is a classic example of a contended investor. You got to admire a guy who says, "we are earning enough". 🙂

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21 thoughts on “How I transferred my home loan from LICHFL to SBI and saved 12 Lakhs!

  1. Vivek Hingorani

    I did the same but was unlucky at two places. Lesson's learnt though
    1. I rushed to change the loan and my rate of interest is 9.25% and immediately within 3 days it was slashed to 8.80
    2. I did not change the floating rate of LICHFL to fixed so when I closed the loan , had to pay extra.

    Reply
  2. Rakesh

    Thanks for sharing your personal experience, will be beneficial to members looking to transfer their loans. Appreciate.

    Reply
  3. Avinash

    Whenever interest rates are slashed the bank sends a letter at their own snail pace saying if you want to decrease the monthly emi pls visit the branch.Otherwise we will decrese the number of installments.Contraty to this whenever he floating rates increase immediately from next month they will increse the installement and send an SMS that due to increse in floating rate the installment has incresed.No word on numbe rof installments.I guess the numbe rof installments remains same . Such unfair practise!!!
    Increse we the banks take advantage.Decrese we will not let yo take advantage is the motto of these banks.Did somebody notice the number of fees and proessing charges the charges the customer. The author of the article is most hapy when he says fees were not charged around teh second time !! Why cant there be a single unified fee. No wonder nobody comes to India to do business.Its a hassle.We should look inward before we go around begging the world to come and set shop in India. Who regulates unfair practises by banks in India ? I wish some enlightened reader would point me to cases where banks were penalized.

    Reply
  4. frank barsotti

    I have been reading your posts, recently, but not knowledgable enough to know some/ most of the 3-5 letter names, ie. lichfl, sbi. Is there a glossery of turm you use in these posts?

    Reply
  5. Mohit

    Dear Pattu Sir
    Could not understand 1 thing here in the excel sheet calculation:
    1) For Old Loan, Loan term is taken as 222 while in New loan it is taken 144, is it right to do for saving calculation ? What is the logic behind?
    2) Also, EMI for Old loan is taken as 21078/- while for new loan it is 23000/- ?

    Reply
    1. freefincal

      Hi Mohit, when you shift you have two choices: (a) either lower the term for same EMI or () keep the same term and lower EMI. The calculator outputs depend on your choices and whether you choose to prepay the savings (in case of lower EMI) or invest them.

      Reply
  6. Arun

    Hello prof Pattu,

    The savings here are over a period of time and one cannot generalise that savings would be 12 lacs at a point of time . For eg . 12 lacs is not saved today or at end of term loan. If we take concept of time value of money (i.e if we take into account inflation) over period of time.
    The savings wont be the same, Could be lesser. Probably the calculator can take an average rate of inflation to account for the same.

    Reply
    1. freefincal

      "over a period of time" is mentioned in the post twice. The second calculator linked considers time value of money. Using inflation does not help much in this context.

      Reply
  7. Pradeep

    Mr Ravi, Do you know why SBI welcomed you with both hands? They have set a high margin of 0.8% on your loan. Banks always like to have customers who pay high spread on their loans.The moment the bank increase the MCLR to 8.5%, your interest rate will become 9.6% (in Feb 2017). And after demonetization money dries up (in 6 months may be) in the bank, MCLR will go up.
    Instead of moving your loan, you should have simply paid Rs.1150 to LIC and reduced your interest rate to 9%.
    It is very important to pick the right time to move and low spreads is one of the most important factors you should get when you move.
    So in my opinion, you may not have saved 12 Lacs which anyway is future money.

    Reply
  8. Pradeep

    Dont worry, the spread on your interest rate is only 0.35%. But the new spread is 0.8%. When MCLR starts increasing in about 6 months time, next year this time your revised interest rate will be 0.55% lesser than those who took it at 8.8%.
    Such a low MCLR today is only due to easy money from demonetization which will not last beyond 6 months as people withdraw their money.
    You have to feel lucky that you did not end up with high spreads.

    Reply
  9. Pradeep

    Also, he spent 10k for property registration plus lawyer fee of 3.5k and also property insurance premium which could be another 10k. That a total of about 25k paid.
    After all that he got the loan at 8.8%. Now by just paying 1150, he would have got the interest rate down to 9% at LIC itself which is only slightly higher than 8.8%.
    Switching the loan to reduce tenure is a totally different matter, but it has to be done with a bank that offers lowest spread which today is Bank of Baroda where a good CIBIL rated customer gets 0% spread.

    Reply
  10. Surya

    Ravi
    Congrats on switching to sbi . I dont understand why you were desparate for sbi loan despite losing 20k first time . I am pretty sure you could have similar options with other banks or even lichfl . A decade ago we hardly had an option for bsnl - today I hardly know anybody who has got a bsnl landline . A flexible person has unlimited options .

    Reply
  11. sumitvshinde

    @Ravi Kiran
    You shouldn't have opted for RiNn Raksha Insurance policy. It's way to expensive compared to term life insurance and also RiNn Raksha covers only outstanding amount on death of policyholder! And if you already have term life insurance of adequate cover, you shouldn't buy any other death insurance; that would be unnecessary expense. You should surrender policy, you will get some percentage of premiums you paid back. SBI staff forcibly sells property insurance policies along with loans.They get huge commission from SBI Life Insurance for this. It's in their interest to sell RiNn Raksha policy; not yours.
    Plus they have given loan to you for RiNn Raksha policy which will be charged at your home loan rate. When you log in using Netbanking in SBI, you will see two loan accounts there, one for Home loan amount of 20 Lakh and other loan account of Rinn Raksha( named BT-Suraksha) with loan amount equal to total premiums you need to pay. So this loan account means SBI bank is paying premium on your behalf to SBI Life for now; when tenure ends you have to pay loan amount along with interest.
    I had same policy. My loan amount is 15 Lakh and Rinn Raksha policy premium costed me 26,461 per annum for 5 years i.e total 1,32,500, separate loan for this bank had given me forcibly. I surrendered policy within 2 years after first installment of 26461 rupees and I got 10,800 rupees back from SBI LIfe. Fortunately, bank didn't pay second installment of premium of 26461 to SBI Life (don't know how), insztalment didn't go to SBI Life from my insurance loan account; Otherwise I would had to pay around 55k to clear outstanding loan of RiNn Raksha policy to SBI bank.
    I closed loan account of RiNn Raksha by paying outstanding amount of around 31,713(26,461 plus interest) to bank.
    If you don't have any death/life insurance policy, buy online term insurance plan; close RiNn Raksha policy in any case.

    Reply
  12. prasanna

    Sir,

    Nice to use the calculator. how have you factored in the inflation aspect of it. When you say some amount is saved, this is accrued over years. In such cases, it is very crucial to include the time value of money. Only then can we gauge the actual situation.
    neverthless, A very useful tool.

    Reply
  13. Loansa Assit

    I read your article very nice but needs more comparitive information by including other 100% Loan Guarantee Lowest Interest Rate & Instant Approval Nationalized Banks.We are Profession All Kind Of LOAN providers For Home Loan,Housing Loan,Construction Loan,Mortgage Loan,TakeOver Loan, Loan Against Property (LAP),TopUp Loan,Site Purchase Loan,DTCP Approval,CMDA Site Loan,( And )an For Cibil Defaulters ( Loan Rejected )( Loan Problems )( Low Salary Profile )( Loan Denied )

    Reply
  14. Pingback: Loan Calculator Lichfl | cg

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