A home loan balance transfer involves moving an existing home loan to a new lender with better terms and a lower interest rate. It resembles applying for a new house loan quite a bit.
When a borrower transfers a balance, the whole amount of the loan that is still owed is transferred to the new account, and the old account is closed after the new lender pays the old lender the remaining debt. The borrower will benefit from a reduction in both the cost of interest on a house loan and the monthly payments, or EMIs, thanks to the new rate of interest.
Is transferring your home loan a good idea?
The lending rates have been steadily declining for the past two years, which would directly affect new loans. The banks will then be able to lower the interest rates on a variety of loans.
Existing clients always pay higher interest rates on home loans than do new consumers. Therefore, it makes sense that the borrower would look into opportunities to move the home loan to a different bank in order to reduce the burden of the home loan interest rate.
To recruit customers, lenders offer enticing lower interest rates. Before switching over, the borrower must take a few things into account.
Transfer process
The majority of borrowers think it is simple to move a home loan from one lender to another. Applying for a transfer is similar to applying for a new home loan. Your existing lender must receive a letter from you requesting a transfer. You can approach the new lender about a balance transfer once the original lender issues a “No Objection Certificate.”
All of the legal documentation will be required for approval by the new lender. If you don’t submit any of it, your chances of being rejected are increased. Despite the lenient restrictions at some financial institutions, there may be complicated terms and conditions, a lower interest rate, and financial advantages.
Calculate the financial benefits
Transferring lenders could be advantageous if the new lender provides you with a significantly reduced interest rate. Pay close attention to the tenure and EMI payment as well. The interest rate keeps increasing the principal amount if the period is longer with a lower EMI amount. Determine the reliable bank by calculating the outgoings for both.
It is advised to avoid making a move if there are less than five years left on your existing bank’s contract because the cost of processing and other fees will eliminate your financial advantages. If the duration and interest rate are advantageous, switching house loans early might be lucrative.
Make contact with the current bank before acting.
Talk about your reasons for switching with your current loan provider. They might give you a break on the interest rate and EMI tenure if they don’t want to lose you as a customer. You might save a tonne of time and effort by doing this.
In the absence of such offers from your current bank, you may proceed with the transfer. Your home loan switchover fee might be up to 5% of the principal amount. Some banks do not charge the whole sum. Negotiate with the lender to get at least a part of the loan waived off.
Knotty terms and conditions
Any lending organization would ultimately want to make money off of its clients. Although the transfer of the home loan could sound appealing, the terms and conditions might be a disappointment. The new lender may impose requirements such as getting insurance or starting family savings accounts, among others. Therefore, read the terms and conditions carefully before choosing the switch to prevent any unexpectedly difficult situations.
Home loan balance transfer a good or bad idea?
Whether the change is advantageous or not depends solely on the state of your loan and the overall economic environment. Numerous banks have dropped interest rates on home loans alone by 10 percent after the RBI reduced the risk-weight. However, you must be well familiar with the terms and conditions of the balance transfer.
You can compare interest rates on home loans offered by multiple banks using an online calculator for home loans with balance transfers. Before starting a shift, be sure to check all the points listed in this article.
To determine your eligibility if you want to apply for a new home loan, go here.
