I know buying a home is a crucial step in everyone’s life. But managing the burden of a home loan is not an easy task. You can considerably relieve yourself of this burden by considering a home loan balance transfer.
Read today’s Brick & Bolt blog to understand when you can consider home loan refinance and how to avail yourself of this service.
What is a Home Loan Balance Transfer?
You can understand Home Refinancing or Home Loan Balance Transfer as a service where you can change your Home Loan balance from the parent bank to another bank offering more flexible repayment options.
Suppose the new bank offers more attractive, lower interest rates, improved tenure, or better repayment facilities, and you can easily move your home loan. The new bank pays your parent bank the outstanding amount.
Benefits of a Home Loan Balance Transfer
By considering a home loan transfer to other banks, you can avail yourself of the following benefits:
Make savings on interest: Upon getting a home loan, if interest rates in the market go down, but your bank is still charging a high interest rate, you can transfer your home loan to another lender with a lower interest rate. This will help you save on interest costs in the long run.
Change from Fixed Interest Rate to Floating Interest Rate: You can easily switch from a fixed interest rate home loan rate to a floating interest rate mortgage by considering home loan refinance.
Minimum Home Loan EMI Amount: By refinancing your home loan, you can avail yourself of a lower EMI. You can reduce your EMI by choosing a lower interest rate home loan or by increasing your loan tenure. You can easily do the math with our home loan EMI calculator.
Get Additional Funds: If you need more money for home renovations or extensions, refinancing your home loan can help. By transferring your loan to a new lender, you may get extra funds along with better loan terms. This can make improving your home while managing your finances easier.
Get Better Home Loan Deals and Customer Service: By refinancing your home loans, you can get better features, for example, no foreclosure fees, lower penalties, or better customer service.
Flexible Tenure of Your Home Loan: You cannot change the loan tenure after the home loan agreement. Refinancing your loan allows you to increase or decrease your home loan tenure. If your financial status has changed for the better, you can choose to reduce your tenure. If you are unable to pay your home loan EMIs, you can choose to increase the tenure of your loan and reduce the EMI amount.
When Should You Consider a Home Loan Balance Transfer?
You can consider home loan refinance for the following reasons:
Interest Rate Difference: A very common reason to go for a home loan balance transfer is when you are getting a lower interest rate from another lender. By mortgage refinancing, you will be eligible for lower EMIs with better repayment terms that will help you save considerably on the overall interest burden. Always consider the interest rate difference of about 0.5% to 1% reduction of at least in the interest rate can make the transfer worthwhile.
Loan Tenure: Make sure you consider your remaining home loan tenure. Take the home loan balance transfer in the early stages of repayment. If you have less than five years left, understand that your EMI will mostly be the principal amount. In this case, even if you get a lower interest rate elsewhere, it won’t impact your long-term savings much.
Credit Score: If your current credit score is better than when you first took your home loan, you may qualify for a lower interest rate. A home loan balance transfer mainly depends on your EMI payment history and your credit score. Before transferring your home loan, talk to your current lender to see if they can adjust your EMI based on your improved credit score.
When to Transfer a Home Loan?
You can consider a home loan balance transfer after 12 to 18 months of making regular and on-time payments on your current home loan. This allows you to qualify for better interest rates and loan terms with another lender.
How to Transfer Home Loan from One Bank to Another?
You can initiate the home loan transfer process by following these steps:
Step 1: Research and Compare Lenders
Compare various lenders or banks regarding their interest rates, fees, and loan terms. Find the one that best suits your requirements.
Step 2: Check Eligibility
Check your eligibility based on criteria such as credit score, income, and employment status before applying for a transfer. To consider your financial reliability, lenders always ask for proof of stable income and employment history.
Step 3: Apply for the Transfer
Inform your present lender that you wish to do the home loan balance transfer. You can do this through a letter listing why you opted for the transfer or an application form, whichever your bank requires.
After applying, the original lender will offer you an NOC (No Objection Certificate) or consent letter. This document is necessary to apply for the transfer with a new lender.
Step 4: Submitting the Home Loan Transfer Documents: Upon receiving the NOC, you need to hand the required home loan transfer documents to the new lender. You might have to submit KYC paperwork, property papers, loan balance, and interest statements along with the NOC. Along with this, you need to submit all the mandatory documents as cited by the bank.
Step 5: Pay Off the Existing Loan
Upon approval of your application, the new lender will pay off the balance of the old loan amount directly to your current lender. This process involves obtaining a foreclosure letter from the old lender, which indicates that your previous loan has been settled.
Step 5: Start Repaying the New Loan
Once you receive the confirmation, you can pay the requisite fees to the new lender and begin a new loan contract.
Home Loan Transfer Charges
According to Reserve Bank of India (RBI) guidelines, banks should not charge foreclosure fees on floating-rate home loans. Hence, you don’t have to pay extra home loan balance transfer charges. However, if you have a fixed-rate home loan, some banks may charge a prepayment penalty of 1% to 3% when you refinance a home loan.
Factors to Consider Before Opting for a Home Loan Balance Transfer
Before considering a home loan balance transfer, you need to check the following factors:
Processing Fees: Almost all new lenders can charge processing fees to handle the balance transfer application. Depending on the lender’s policies, these fees can range from 0.25% to 1% of the loan amount. You should inquire about these charges to save money.
Prepayment Charges: Be conscious of prepayment charges from your current lender. Lenders often demand penalties for early loan closure, ranging between 1% and 3% of the outstanding balance. You need to be aware of these fees, as they might deny the benefits of switching lenders.
Loan Tenure
While deciding on overall interest payments, you need to consider loan tenure. You can reduce your monthly EMI, but the total interest paid may increase in the long run. Conversely, reducing the tenure can save on interest, so carefully assessing your repayment capacity is essential.
Hidden Costs
You can expect hidden costs for the home loan balance transfer. These can include legal fees, valuation charges, and administrative expenses, which could add up significantly.
As you get a brief idea about housing balance transfer, you can decide based on your financial requirements. Always carefully consider the new lender. However, home loan refinance will always be advantageous for you in all aspects.
Hemali Patel