Home loans come with a long tenor and can stretch up to 30 years. During this period, if borrowers feel that the existing lenders cannot match their expectations and help them in reducing the cost of borrowing, they can opt for a home loan balance transfer.
Home loan balance transfer refers to the process of shifting their outstanding home loan to a new lender. To ensure borrowers get the maximum benefit out of this process, they must consider certain things before transferring a home loan; read on.
Rate of interest
Borrowers usually think of transferring home loans when they find out other financial institutions offer a reduced rate of interest than the existing one.
Interest rate is one of the crucial factors of a home loan or any loan, and it decides the total cost of borrowing, and a slight change, even a 0.05% difference in interest rate, can make up a substantial amount at the end of loan tenor. In addition, it helps to reduce the EMI burden.
For instance, if a borrower has an outstanding loan amount of Rs.60 lakh with a lender where the interest rate is 9.75% and the remaining tenor is 20 years. That borrower has to pay Rs.56,911 as EMI and Rs.1,36,58,643 as the total due.
In such circumstances, if that borrower decides to take a home loan balance transfer with another lender who offers a 1.50% lower interest rate than the existing lender. Then that individual has to pay Rs.51,124 as EMI and Rs.1,22,69,745 as a total loan amount. Thus, that applicant can save Rs.13,88,898. Here, individuals can use a home loan balance transfer calculator to learn the amount they can save from transferring their loan. Note that borrowers must conduct market research and select a lender that allows home loan transfer at competitive rates.
Though the intention behind transferring a home loan may revolve around the fact of a reduced interest rate, there are other costs that borrowers must be aware of.
In a home loan balance transfer, borrowers contact a new lender who pays off the unpaid loan balance and closes the account. Simultaneously, they open a new account with a new lender and continue the loan at improved terms.
Therefore, it is clear that the process of transferring a home loan works similarly to that of availing a new home loan. Thus, there is a processing fee for transferring a loan.
Individuals can negotiate the processing fees if they have repaid EMI on time. Hence, if borrowers have a good repayment track, they can even enjoy a waiver on the home loan balance transfer processing fees.
Remaining loan tenor
A home loan balance transfer benefits borrowers when they have a considerable loan amount left with the existing lender.
If borrowers have already paid the majority of the home loan amount or have reached the middle of the loan tenor, they will gain little advantage from the process. In the case of home loans, most of the initial EMI goes into paying interest on the loan.
If borrowers switch lenders at the end of a loan tenor, they can scarcely enjoy the benefits of reduced interest rate on home loan balance transfer. In addition, the cost of transferring this loan may outweigh the benefits offered under a home loan balance transfer.
Therefore, it is best if borrowers opt for a home loan balance transfer when they still have a longer repayment tenor.
As per the regulations set by the Reserve Bank of India, lending institutions cannot charge a prepayment penalty if borrowers wish to close the home loan account before the stipulated time period.
In addition, borrowers must note that a home loan can be taken in a floating or fixed interest type. As the name suggests, the fixed interest rate remains fixed throughout the loan tenor. On the other hand, the floating interest rate changes with the changes in the repo rate by RBI.
Therefore, while opting for a home loan balance transfer, borrowers must verify if the new lender is allowing such a change in the interest rate or taking a prepayment penalty. Further, they must read the terms and conditions of lenders to avoid discrepancies in future.
Availability of top up loan
While considering of availing a home loan balance transfer, individuals must check if the new lender offers the facility of a top up loan with their existing loan. This loan amount is over and above the existing home loan amount and usually comes with no end-use restrictions.
It means individuals can get an additional loan amount and use it to fund personal expenses such cover educational or marriage expenditures, home renovation, and many other things.
Top up loan has a long repayment tenor and are offered competitive interest rate. Thus, together with a home loan balance transfer and top up facility, individuals can efficiently manage a wide range of expenses.
Reputed lending institutions provide a home loan balance transfer at improved terms and rates.
These financial institutions also provide a pre-approved offer to make the loan availing experience hassle-free. These offers are also available for other financial products such as loans against property, home loans, etc. Individuals can check their pre-approved offers by entering names and contact details.
Now that individuals know important things about a home loan balance transfer, they can avail the same without any hassle.