Factors to Consider Before Opting for Home Loan Balance Transfer

Balance Transfer refers to the process of transferring one's Home Loan from one lender to another for better interest rates and terms. When a borrower opts for a Home Loan Balance Transfer, the new lender pays off the old lender and thereafter, the borrower must pay EMIs to the new lender.

Borrowers are advised to opt for a Home Loan Balance Transfer during the early years of a loan. During the initial years, the interest component is still high. Thus, when Home Loan borrowers opt for a Home Loan Balance Transfer during the early years of their Home Loan journey, the new, lower interest rate offered allows them to save a considerable sum of money and also easily recover the Home Loan takeover charges that most lenders apply.

Let us now look at the benefits of Home Loan Balance Transfer in detail. 

Why Should You Choose Home Loan Balance Transfer?

1. Better Savings

The first and the most important reason why any Home Loan borrower must opt for a balance transfer is better interest rates.

The interest rate is the key component that determines the affordability of a loan. A high-interest rate makes EMIs unaffordable and increases one's chances of a payment default. If paying your current EMIs feels like a burden, you will most certainly benefit from a lower-interest rate Home Loan and the best way to avail yourself of it is to opt for a Home Loan Balance Transfer. 

When, through a Home Loan Balance Transfer, the applicable interest goes down, your total interest outgo decreases too. This helps you save more money in the long run.

Additional Read: How a Home Loan Balance Transfer Works 

2. Top-up Loans

These days, when borrowers apply for a Home Loan Balance Transfer, most lenders give them the option to avail of a top-up loan amounting up to Rs.1 Crore* or more basis eligibility. 

This Top-up Loan has several benefits. To start with, Top-up Loans come with zero end-use restrictions. You can use the money as you like – to buy another house, pay for your child's education, invest in your future, etc. Further, Top-up Loans draw a nominal interest rate – expect to pay a 1% to 2% higher interest rate than what you are currently paying. Borrowers also enjoy a flexible repayment tenor with these loans – the repayment tenor for your Top-up Loan will be the same as the remaining tenor for your Home Loan. So, a Home Loan with top-up is easily one of the quickest and most economical ways of arranging funds.

3. Switch from Fixed to Floating Interest Rates

How to choose a Home Loan? A Home Loan must be availed of after proper financial planning – not only should you borrow only what you can easily repay, but you must also carefully choose the type of interest rate that will work for you.

Opting for a fixed Home Loan interest rate only makes sense when you know for sure that the housing loan interest rates will go higher in the future. Otherwise sticking with a floating interest rate is the better option. Borrowers who are on floating interest rates save a great deal of money on their EMI payments when the interest rates go down and Home Loan interest rates eventually always come down.

If you are currently on a fixed interest rate, you can switch to floating interest rates while making a Home Loan Balance Transfer at no additional cost. Further, if you switch to a floating interest rate during the Home Loan Balance Transfer, you will be able to prepay or foreclose your loan at no additional cost. The RBI mandates that lenders cannot levy prepayment penalties or foreclosure charges on prepayments made by individual borrowers on floating interest rate Home Loans. So, during a balance transfer, opt to switch to floating interest rates and benefit in the long run. 

Also Read: Differences Between Fixed and Floating Interest Rates 

4. Better Service

Many times, borrowers opt for a Home Loan Balance Transfer because their current lender's services are sub-standard. Thus, they wish to transfer their Home Loan to another lender who would offer them better services. 

5. Longer Tenor

Lastly, when you opt for a Home Loan Balance Transfer, you get the chance to extend your loan tenor and make your EMIs affordable. If your current EMIs have become unaffordable and you find it difficult to arrange money each month to pay them, opt for a Home Loan Balance Transfer and increase your loan tenor. This will increase your total interest outgo, but it will also make your EMIs affordable and allow you to repay your loan comfortably. ​While planning a balance transfer, you can use a home loan EMI calculator to estimate your EMI and interest amount in advance. 

Additional Read: All About Home Loan Refinancing

Home Loan Balance Transfer: Step-by-Step Process

If you are planning to opt for a Home Loan Balance Transfer, you will have to follow these steps:  

1. ​Do your research and figure out the Home Loan lender to whom you wish to transfer your Home Loan.
2. Let your current lender know through a letter or an application form that you seek a Home Loan Balance Transfer.
3. Once your current lender accepts your request, they will release a NOC or No Objection Certificate.
4. Submit this certificate along with other documents to your new lender. 
5. Once your Home Loan Balance Transfer application is approved, your new lender will clear your pending loan amount with the old lender. 
6. Once this is done, you will have to start paying your EMIs to your new lender.

A Home Loan Balance Transfer is an important facility that gives borrowers the chance to make their housing finance affordable and easy to repay. If your current lender is charging you a very high-interest rate or has not passed on the benefits of a repo rate cut to you, you can transfer your Home Loan or Loan Against Property to another lender offering you better, lower interest rates.

Read Also: A Quick Guide to Securing a Better Interest on Home Loans

*Terms and conditions apply.