Availing of a housing loan can sometimes prove to be a huge financial burden for the borrower. In the case of a home loan, the borrower must continue to repay the loan over numerous years, which is a problem since loan EMIs are usually a hefty amount. Tax benefits on home loans are a plus, but as a borrower, a small reduction in the EMIs are always be a welcome event. It is for this reason that borrowers must know what is a home loan balance transfer.
It is a way to reduce your home loan EMI payments by transferring your loan to another lender offering a lower home loan interest rate. Using a home loan balance transfer calculator tool helps one know the difference it would make to the home loan EMIs if the loan is transferred from one lender to another and how financially fruitful such a change would be.
What is Home Loan Balance Transfer?
In other words, the balance transfer facility allows you to transfer your outstanding home loan from one lender to another offering a lower home loan interest rate. Other advantages of a home loan balance transfer are:
- Repayment plans as per your requirement
- Customised schemes for insurance
- Availability of top-up loans over and above the existing loan
- Online loan management tools
- Zero hidden charges for a balance transfer
Checklist for Home Loan Balance Transfer
Before finalising the home loan balance transfer, here are a few points which you should check out:
Rate of Change in Interest –
A small hike in your home loan interest should not make you think of a home loan balance transfer. It is important to know what is home loan balance transfer and when to go for it. Using the home loan balance transfer calculator you can calculate the exact change in your home loan EMI on balance transfer. If the rate of interest exceeds 75 basis points, then it does make sense to go for a home loan balance transfer. You will benefit from refinancing the loan if the new rate of interest is at least 1% lower than the rate your existing lender is offering.
Loan Tenor Remaining –
If you have repaid more than 50% of the loan and are at the end of your loan repayment tenor, then the balance transfer of the home loan may not be fruitful. Being at the very end of the repayment tenor, when most of the interest is paid may not help to save even if you move to a lower rate of interest. However, if you have just availed of a loan and are paying high interest on it, then it will certainly be beneficial for you to get it refinanced through a new lender offering better rates
Possibility of Switching from Fixed Rate to Floating Rates –
Fixed rate home loans do not change throughout the loan tenor but floating home loan interest rates change with changes in the market conditions. It is said that floating home loan interest rates are cheaper than fixed interest rates but as they change with the market, they come with the possibility of market rates increasing as well. A balance transfer can help you shift from fixed rate to floating rate and vice versa.
Clauses in The Agreement –
Your Credit Rating –
Inconsistency in repaying debts and loan EMIs on time reflects poorly on your credit score or CIBIL rating. A poor credit score affects your eligibility for a loan balance transfer facility. The new lender will consider your credit score along with the other factors before offering you lower interest rates. So, making timely credit card bill payments and EMIs ensures that your credit score is high and your new lender has full faith in your repayment abilities to offer lower interest home loans.
You may know what is home loan balance transfer but what you don’t know is that you may be charged a sum by your old lender for transferring the loan to a new lender. So, if you are transferring the home loan, make sure that the charges paid are worth the lower home loan interest rate and other benefits that you may get from transferring the home loan. Read the loan documents carefully for hidden charges or terms and conditions.
Added Facilities Offered –
Today, lenders retain their existing home loan customers with added benefits apart from lower interest rates, such as top-up loans and longer tenor loans. They offer zero balance accounts, flexi-deposits facilities, credit cards, locker facilities, and current accounts to store your temporary surplus. These are common facilities offered by lenders. After a balance transfer, the new lender may charge you for these facilities, not forgetting the time and energy that will be spent on the balance transfer of the home loan. So, think before opting for the transfer and make sure your decision is worth the trouble you will be taking, both financially and mentally.
A balance transfer of a home loan can help you get a loan at a lower interest rate but don’t forget the additional costs you will incur to get this benefit. If these costs outweigh the decrease in the interest rate, then it does not make sense to transfer your loan. So, choose wisely after taking into account all the pros and cons.
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