Top Things to Keep Track of While Doing a Home Loan Balance Transfer

A Home Loan Balance Transfer enables the transfer of an existing Home Loan to another Home Loan lender at a relatively lower rate of interest and for additional benefits. It is quite like availing of a new Home Loan.  

When a borrower opts for a balance transfer, the total outstanding Home Loan amount is transferred to a new Home Loan account and a new lender pays off the remaining Home Loan balance to the previous lender and the account is closed. The new rate of interest helps the borrower to save on the monthly installments or the EMIs as well as the interest outgo on a Home Loan. 

Why Should You Consider a Housing Loan Transfer?

A Home Loan typically involves a large sum of money to be paid and the interest rate on the Home Loan is steep in India, compared to the remaining parts of the world. Over a period of 20 years, a borrower will easily pay 2.5 times what the Home Loan they avail of. For instance, an INR 1 Crore Home Loan can make for a payout of INR 2.5 crore over a tenor of 20 years. 

 Therefore, even a drop in the Home Loan by 0.5% interest rate in the Home Loan can bring about a big difference in the overall outgo. A good idea to lower the home Loan interest rate is to check with the existing Home Loan lender. However, if the current Home Loan lender refuses, there’s an option of transferring the balance to a new lender. However, keep in mind that it’s always going to come with its advantages and disadvantages. 

Additional Read: Tips to Avail of a Competitive Home Loan Interest Rate 

Here are some of the things you must keep track of when opting for a Home Loan Balance Transfer.

Negotiate on Lower Interest Rate

Before heading to do a Home Loan Balance Transfer, it is a good idea to negotiate with the existing lender for a low-interest rate. If you have a rapport with your current lender, then they may consider the request by looking at the credit history and Home Loan repayment capacity.

Check Your Credit Rating

Your credit score is one of the key variables that decides whether you are eligible for a Home Loan Balance Transfer or not. Let’s say you’ve been inconsistent in repaying credits on time and this will hamper your credit rating. A poor credit score indicates that you’re less qualified for a Home Loan transfer facility as the new lending institution will consider the credit score along with other factors.

Charges Involved

The process of Home Loan Balance Transfer involves processing, application, administration charges, and inspection fees, among others. There’ll be certain charges that will be charged by both the new and existing lender. Calculate if the cost involved in a Home Loan Balance Transfer is lower than the interest amount.

Repo-linked Home Loans

Repo Rate-Linked Lending Rate (RLLR) loans are associated with the RBI’s Repo Rate. This is the rate at which lending institutions like banks borrow funds from the RBI. As the RBI reduces the repo rate, lenders that offer RLLR-based loans lower their interest rate. The lending institution’s Home Loan interest rate will move down or up. This will be based on the repo rate activities. RLLR Home Loan establishes transparency among borrowers if the RBI increases or decreases the repo rate. Repo rate cuts usually have a positive impact on homebuyers since they reduce Home Loan interest rates. This, in turn, lowers the EMI burden. 

Read Terms and Conditions before Transfer

When you have selected a Home Loan lender for a balance transfer, make sure you have gone through the terms and conditions to avoid all kinds of hidden charges. You must ensure you know what the new lender has to offer in terms of housing loan benefits.

When should you avoid Home Loan Balance Transfer?

Financial specialists advise avoiding Home Loan Balance Transfer if an individual is nearing the loan tenor or planning to sell their home sometime in the future.

A Home Loan Balance Transfer in India may seem to be a beneficial option, but before making a move one will need to weigh in the above factors.

Additional Read: How a Home Loan Balance Transfer Works

Know Your Eligibility before a Home Loan Balance Transfer

A borrower can opt for a Home Loan Balance Transfer if they have at least paid 12 EMIs on an existing housing loan in India. While some Home Loan lenders allow 6-12 EMIs, there should not be any defaults in paying the existing EMIs. If the property is still under construction, there should be adequate and authentic paperwork to get it approved by the new lending institution.

The eligibility criteria typically include age, which should be between 23-70, the loan-to-value ratio, and income. Individuals who have a stable income are more likely to be eligible for Home Loan financing as they’re considered to be low risk compared to individuals who have unstable incomes. The documents required would include bank statements from where EMIs had been deducted and a “No Objection Certificate (NOC)” from the existing lender along with address proof.  

To transfer or not to transfer

It is essential to be extremely cautious while making a Home Loan Transfer as it can impact your savings in the long term. Understand your motive for refinancing. Do you want a more flexible loan or are you looking for a shorter- or longer-term Home Loan? Are you seeking to access the equity to the property’s value?  

Consider all charges and associated factors and carry out a cost-benefit analysis before switching. But before opting for a Home Loan refinance, there’s always a possibility to negotiate with the current Home Loan lender. If the current Home Loan lender agrees, then a significant amount of money and time can easily be saved. 

*Terms and conditions apply.