Switching under-construction loan is difficult

Banks may not take up unapproved housing projects; those repaying a minimal amount may also be denied

Shopping for the best rates might be a good idea to cut your equated monthly instalments (EMI). However, if the property for which you have taken the loan is under construction, it might not easy to transfer the loan.

For instance, if you approach a bank that has not approved the housing project, switching may not be allowed, says a senior State Bank of India official. “The decision depends on who the project developer is and current construction stage. We also check if the project is on schedule, if no, then how much the delay is. This is because most projects are stuck for a long time. And, in such cases, many borrowers don’t want to keep repaying the loan when there is no surety on project completion.”

Even if you approach a bank that has approved a real estate project, it may not give a green signal for balance transfer if the project is running behind schedule for more than two years.

Securing a loan transfer would also depend on whether or not you have been repaying your home loan during the under construction period, says a private banker. “If an individual has been repaying a fixed minimal amount, we may not allow balance transfer as these borrowers may be high risk,” he says.

When you secure a home loan for an under-construction property, you have an option to start repaying immediately (called pre-EMIs). The EMI to be paid will depend on the amount that has been disbursed. You can also repay the entire EMI. Or, you could choose to start repaying once the entire disbursement is over or on possession.

If one has repaid a substantial part of the interest portion, banks may deny switching because there is little revenue for it, says the private banker.

Those who have been irregular with repayment with the current lender may also not be able to switch.

“If banks do allow risky borrowers to switch, they may impose some restrictions. Like, the borrower may not be allowed to re-negotiate loan terms such as extending the tenure for a lower EMI,” says an HDFC Bank official. Also, such borrowers may not be allowed a top-up the loan.

According to Harsh Roongta of apnapaisa.com, there could be some operational issues. You would need a no-objection certificate (NOC) from your builder to switch, which the builder may or may not give. The NOC is required when borrowing. Some may ask for a no-due certificate from the previous lender to give a second NOC. “Builders give an NOC at the time of buying of house without any fuss. But the second time around he may charge you for a second NOC,” he says.

And on completion of the project and society formation, the conveyance deed is not in favour of the society, then the house owner will need an NOC both from the builder and the society, Roongta adds.