Important Things to Consider Before Transferring Home Loan Balance

Availing a Home Loan involves considerable time and effort before one finalises the right loan deal. However, while servicing the loan it is quite possible that another lender might offer you a better scheme at lower rates of interest. In such a scenario, you may consider shifting your outstanding loan balance to this new lender who grants you more competitive terms. This process is known as a Home Loan Balance Transfer or Home Loan refinancing.  

How Does a Home Loan Transfer Work?

​Lenders usually try to retain customers by offering them preferential rates and terms. But in case, an attractive deal from another financial institution comes your way, you can renegotiate the existing terms with your current lender based on your repayment track record and credit score.

It is fairly easy to switch lenders and secure favourable deals as a borrower if one has the required eligibility. Typically, the process of balance transfer involves the following steps: 

1. First, you need to submit an application for a balance transfer to your existing lender. 

2. ​They will then, issue a letter of consent, no-objection certificate (NOC), foreclosure letter, list of property documents (LOD) and loan statement that indicates your EMI payment history.  

3. Now you can apply with the new lender. You will have to furnish the requisite paperwork, which is quite similar to that for a new Home Loan. This normally includes: 

• The loan application form along with your passport-sized photograph 
• Proofs of identity, date of birth, address and signature 
• Documents that prove ownership of the property pledged for the loan 
• NOC from the builder or society as well as relevant documentation from the previous lender
• The latest salary slips for three months; and income tax returns or Form 16 for the past two years as proof of income 
• An appointment letter or business continuity proof 
• Bank statements for the last three months 

4. Once your new lender receives the necessary documents, they will begin processing your loan application. They will evaluate your financial history and documentation to examine your eligibility for the loan transfer. 

5. Upon approval of your transfer request, the new lender will issue a cheque to the old lender for the principal balance amount. 

6. The previous lender will now initiate the transfer of your loan papers after receiving the cheque from the new lending institution. 

7. Finally, any post-dated cheques lying with the previous lender will be cancelled to complete the balance transfer process. 

8. Your EMI payments, thereafter, will be payable to the new lender as per the agreed terms and conditions.   

Additional Read: All You Need to Know About Home Loan Balance Transfers 

Important Considerations Before a Home Loan Balance Transfer

A loan balance switch gives borrowers an opportunity to restructure their Home Loans at lower interest rates with suitable terms. It can be a sensible decision if done at the right time. Here are a few things one should keep in mind to obtain optimal benefits from a loan transfer: 

Reduced Interest Rates and EMIs

Individuals can consider shifting loans if they find a lender who offers them lower interest rates than the existing one. A drop in interest rates will result in comfortable loan EMIs, making your Home Loan cheaper while significantly reducing the debt burden. 

Better Repayment Terms

Every lender extends different terms and conditions on a housing loan. Refinancing your loan can be advantageous if you can grab the best deal in the market with ideal repayment options. 

Foreclosure and Pre-payment Charges

There may be several fees and Home Loan transfer charges attached to a loan switch that could be imposed by both your old and new lenders. So include these expenses in your cost analysis calculations. Generally, there are two essential charges that borrowers need to account for. If you seek to foreclose or partially pre-pay your house loan before the end of the stipulated tenor, a specific fee has to be paid in both instances.  

Top-Up Loans

Loan refinancing is tendered with various direct advantages, chief among them being decreased credit cost; and indirect benefits like a top-up loan, which assures you of additional loan funds. Thus, a top-up presents a more affordable and faster financing solution as compared to other lending alternatives. 

Pre-Approved Offers

Lenders occasionally introduce numerous offers and schemes that prospective borrowers should watch out for. Furthermore, see if you qualify for pre-approved loan offers, which can facilitate a swifter loan approval process. 

Additional Read: Factors You Need to Consider Before Foreclosing Your Home Loan 

The Final Word

Your EMI comprises the principal and interest variables of a Home Loan. In the initial years, the interest forms a major portion of your EMIs, which gradually recedes over time as the principal component increases. This feature proves profitable in the initial years of borrowing. But at a later stage of loan repayments, you may not gain any benefits as you would have already paid off a fair amount of your loan by then.  

Remember, one shouldn’t opt for a balance transfer simply because of low-interest rates. It is imperative that you run a cost-benefit and risk analysis using a home loan balance transfer calculator to ensure that a loan switch justifies the associated costs. Hence, weigh the pros and cons carefully before you decide to shift your housing loan to another lender.