A home loan balance transfer is the process through which home loan borrowers switch from one lender to another for better interest rates and terms.
If you find that your lender’s interest rates are too high or that the terms are not favourable for you, you could consider switching to a different lender.
Since a home loan is a fairly long-term commitment, you should always ensure that you’re getting the best deal possible. This can help you save a lot of money, time and effort.
Why Choose a Home Loan Balance Transfer?
Here are some reasons why you should consider opting for a home loan balance transfer:
Lowered Rate of Interest
Lowered interest rates is one of the most common reasons for home loan balance transfers. This is because home loans generally span over a number of years, which means that the interest payments are quite substantial. Even the smallest percentage change in the interest rate could potentially save thousands, if not lakhs of rupees.
Even if your loan interest rates are not particularly high, you should consider shopping around a bit and understand the interest rates offered by other lenders. This will help you evaluate if you could benefit from a home loan balance transfer.
It’s particularly important to take account of interest rates offered by other lenders if you have opted for a fixed interest rate. Here, your home loan interest rate remains the same throughout your loan tenure.
This can be beneficial to you if the rates were quite low when you took your home loan. But, this can easily work against you as well. For example, maybe your credit score has gotten a whole lot better since you got your home loan.
This means that you have better negotiating power now than you did before, which can help you access much better rates and terms. Lenders offer low interest rates on home loan balance transfers if you have a good credit score and/or have a good repayment track record.
- Better Repayment Options
Most lenders do not allow for change in repayment plans. This can be quite frustrating for you if you find that a revision in repayment tenure would make sense for you.
It could be that your income level has risen substantially since you’ve taken the loan. Hence, you’d like to make bigger contributions towards your home loan repayments.
Or, it might be the other way around as well. Maybe you’ve taken up additional financial responsibilities and it would make more sense for you to reduce your monthly repayment contributions.
If your lender doesn’t agree to these terms, you might be better off opting for a home loan balance transfer. Make sure your new lending institution lets you change your repayment plan.
- Top-up Loans
Another benefit of a home loan balance transfer is that you will often get the provision of a top-up loan. Contrary to popular belief, the top-up loan can be used to meet any of your personal or professional financial obligations. The top-up loan does not come with any end-use restrictions, unlike a regular home loan.
A home loan balance transfer is a simple and effective way to procure some extra funds. This is a great option for you if you do not wish to go through the hassle of taking a whole new loan. Moreover, since this is a secured loan, you’ll likely get better home loan balance transfer interest rates than a regular personal or professional loan.
- Better Terms
Other advantages of a home loan balance transfer includes more favourable terms. This can include processing fee waivers, better service, minimal prepayment and foreclosure charges, etc.
Things to Consider Before you Transfer your Home Loan
Here are some important points to consider before you choose to transfer your home loan:
- Lender’s Credibility
Your home loan is possibly your biggest financial commitment. So, it is especially important that you’re careful with it. When looking to transfer your home loan, always choose a reputed and trustworthy lender. Make sure to run a basic background check before settling in on your new lending partner.
- The Remaining Tenure on Your Existing Home Loan
Many home loan borrowers overlook this crucial factor while opting for a home loan balance transfer. The timing of your home loan balance transfer is one of the biggest determinants of whether or not this is a financially prudent decision for you.
This is because a substantial portion of our home loan repayments goes towards paying off the interest in the initial few years. Whereas, during the later years, a larger portion of the repayments goes towards the principal amount.
So, let’s say you opt for a lender that offers you a lower interest rate during the first few years of your loan repayment. This will help you save a lot of money by reducing your interest payments.
On the flip side, let’s assume you choose to go for a home loan balance transfer during the later stages of your loan repayment tenure. This would mean that you’d have to repeat the process of contributing larger chunks of your repayments towards your interest payments all over again. So, if you’re not careful, a home loan balance transfer can actually end up costing you more!
Make sure to get in touch with your new home loan provider to understand their process better. A great way to go about doing this is to request an amortisation schedule. An amortisation schedule is a table that details out periodic loan payments. Simply put, it’s a tabular representation of how your EMIs contribute to your overall interest and principal repayments.
- Cost of Home Loan Balance Transfers
There are a number of costs associated with home loan balance transfers. The most significant of these are foreclosure charges and processing fees. These charges start at about 0.5% of the outstanding loan amount and can go up to 6% of the same.
Always make sure to account for all these costs while calculating savings on home loan balance transfer to arrive at the net savings.
If you have a good credit score and/or a good relationship with your lending partners, you can request to have these fees waived off. While your lender might not always oblige, it’s definitely worth a try!
Terms and Conditions of the New Loan
While a lower interest rate may seem quite attractive, it’s important to factor in all other terms. This will help you make a more informed decision. Make sure to read the fine print and get a clarification from your lender in case of any discrepancies.
Moneycontrol Journalists were not involved in the creation of the article.
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