Ever thought of switching your home loan to a new lender, especially when you see a lower interest rate advertised?
When you take a home loan, you research and compare the best deals. Finally, you choose the lender that suits your requirements the best. It might be the best deal when you start your home loan, but chances are now another lender is offering a better deal for your requirements.
In such a situation, it is feasible and practical to transfer your home loan to a new lender for better terms. The process is called a home loan balance transfer.
Take a look at the various benefits of home loan balance transfer
What is a home loan balance transfer?
A home loan balance transfer is also known as refinancing. Almost every lender offers a home loan balance transfer facility. If you have the required eligibility, you can switch your home loan and get a better deal as a borrower.
Though the lenders try their best to retain good customers by offering the best terms and rates. One way of looking at it is, if you are getting a better deal, you can ask your existing lender to take another look at your interest rate based on your repayment track record and credit score. Then, your existing lender might renegotiate the terms with you.
Why opt for a home loan balance transfer?
The main reason is the lower interest rate on your home loan. Apart from that, revised repayment terms, preapproved offers, or better services are a few more reasons to opt for a home loan transfer.
When does a home loan balance transfer make the most sense?
You can’t transfer your home loan to a new lender every time there is a rate cut. Here are a few situations when a home loan balance transfer is advisable:
1. When the remaining home loan tenor is considerable
When your home loan is in the initial years, a balance transfer is profitable. However, if you are approaching the end of your home loan, it doesn’t make sense to incur the cost of transferring the home loan.
2. When the unpaid home loan amount is substantial
If a major portion of the home loan is remains unpaid and you get a lower interest rate with a new lender, it makes sense to transfer the home loan. On the other hand, unpaid home loans are just 5 to 10% of the total amount, it won’t be a wise decision to transfer your home loan.
3. Overall reduced cost
Most borrowers just look at the lower interest rate while transferring the home loan. You must know there will be a cost involved in transferring your home loan to a new lender. Consider the overall cost of transferring the home loan and then look at the benefits involved. If the benefits are higher than the costs, you may proceed with the home loan transfer facility.
Cost benefit analysis: An important factor for a home loan balance transfer
You must have been advised to weigh your options before you transfer your home loan. Here’s a look at what you should consider regarding costs and benefits while transferring your home loan.
Additional Read: Reduce EMIs with home loan balance transfer
Costs involved in home loan balance transfer
1. Consider each and every cost involved:
The cost can be from the existing lender as a penalty for closing the home loan before time. The other cost can also be as a processing fee from the new lender.
2. Consider the hassles:
There won’t be just monetary costs involved. Few things can’t be measured, but they come as additional liability. Consider the hassles in processing your home loan transfer, like the documentation or running around.
Benefits of home loan balance transfer
1. Lower rate of interest
The primary reason why borrowers opt for a home loan balance transfer is the lower rate of interest offered by another lender. Lower interest rates reduce the EMIs and, eventually, the total cost of the loan.
2. Smaller EMIs or longer tenor
The primary reason why borrowers opt for a home loan balance transfer is a lower rate of interest offered by another lender. Lower interest rates reduce the EMIs and, eventually, the total cost of the loan.
3. Part-prepayment facility
Part-prepayment enables you to pay a portion of your outstanding loan principal. This facility lowers your EMI or reduces the tenor. Part-prepaying your loan also helps you to save on interest.
Your current lender may not allow part-prepayment or even levy high part-payment charges. Hence, you can transfer your home loan balance to another lender offering this facility.
4. Top-up loan
You need of additional funds to cover other financial objectives like weddings, higher education, debt consolidation, etc. Opting for extra funds can also be helpful for home renovation if you have bought a second-hand property.
In such cases, a balance transfer facility can provide you with a top-up loan.
A top-up loan is similar to a personal loan as it comes with no-end use restriction. You can also avail of income tax benefits of up to Rs. 30,000 towards interest payments under Section 24(b), if you use the loan for home renovation.
5. Other benefits and services
You may look for benefits and services with a home loan that your current lender does not offer. Thus, transferring your loan to a financial institution that offers such features can be beneficial.
Additional Read: How does a home loan balance transfer work?
Home loan balance transfer process
Here is a step-by-step process for home loan balance transfer:
1. Shop around:
Start by comparing the interest rates, features and costs involved.
2. Negotiate with existing lender:
If you get a better deal, speak to your existing lender if they can negotiate the terms to retain you as a loan customer.
3. NOC from existing lender:
Once you make up your mind, submit a letter to your existing lender requesting a loan transfer. Your existing lender will issue a ‘No Objection Certificate’ along with the remaining loan amount.
4. Collect important documents:
Ensure you take the property documents from the existing lender or they transfer it to the new lender. Also, take back any post-dated cheques submitted to your existing lender.
5. Submit the documents to the new lender:
Meanwhile, start the procedure with the new lender to transfer your home loan.
6. Repay and close the existing loan:
Your new lender will pay off your unpaid home loan by transferring the remaining amount to your old lender.
7. Start home loan afresh with better rates:
Now, you can start a fresh home loan with the new lender, with a reduced interest rate.
Conclusion
A home loan balance transfer is a win-win situation for a borrower. But, make sure you make an informed choice and don’t fall into the trap of short-term offers advertised by lenders.
