A home loan is a long-term financial deal and we have to shell out a lot of money every month to keep the loan repayment process afloat.
Repayment of home loans often spans into decades, sometimes twenty to thirty years, thus managing your monthly budget becomes crucial. Servicing your home loan will drain a substantial amount of money every month. Therefore, borrowers are often on the lookout for lowering the interest rate. A home loan balance transfer is one of the facilities provided by most banks and financial institutions that helps a borrower either change their interest regime or transfer the outstanding loan amount with the existing lender or a new lender. A home loan balance transfer is generally taken when a borrower finds a lower interest regime and other features that help in saving money. Home loan interest rate can be compared across lenders using online financial tools, such as the home loan balance transfer calculator, to know if the transfer will be beneficial for you or not.
Eligibility for Home loan Balance Transfer
For home loan balance transfer, banks and financial institutions levy different rules according to their terms and conditions. These include the age of the applicant, loan-to-value (LTV) ratio, income, and credit score of the applicant(s). Your credit rating is a crucial factor for a home loan balance transfer. The balance transfer on an existing home loan can only be availed after a pre-determined period as mentioned in the original loan agreement.
You should make sure to pay the EMI punctually. Many lenders mandate the borrowers applying for a home loan transfer to complete at least a year or should have paid 6-12 EMIs (minimum). Basic documents of the property, no objection certificate (NOC) from the existing bank, address proof, and bank statement in support of EMI payment are required with the home loan balance transfer application form. The borrowers with a stable income and high credit score have chances of better interest rates while availing of a home loan balance transfer.
Finding the Best Lender for Home Loan Balance Transfer
To find the most suitable lender for your home loan balance transfer, you have to compare the market for the following factors:
Interest rate: The interest rate charged over home loans is the most crucial factor for home loan transfer. The floating interest rates are affected by the changes in the repo rate as regulated by the RBI.
Therefore, if your home loan is charged with the floating interest rate you should review your home loan and opt for a balance transfer when there is a favourable change in the repo rate, for a different interest regime with your existing lender or a new lender.
Prepayment or Foreclosing Charges: Before opting for home loan balance transfer, you should calculate the administrative charges, foreclosing fees, and other service charges of the new lender. The RBI mandates the banks and financial institutions to charge zero prepayment penalty for the floating interest type.
Processing Charges: Processing charges could range from 0.25 to 1 per cent of the outstanding loan amount. The borrower should look for other hidden charges, such as service charges etc., before opting for a home loan balance transfer.
Top-up loans: Lenders often put a certain cap over the upper limit or maximum loan that could be taken in addition to a home loan. While shifting your home loan, it would be wise for the borrowers to know the limit of the top-up loan that s/he could avail of in case of financial emergencies. Bajaj Housing Finance offers a balance transfer top-up loan up to Rs 1 Crore.
Know the Best Time for Balance Transfer
It is important to understand the ideal time for switching your home loan balance. If the remaining home loan tenor is less than five years, then opting for a home loan balance transfer will not be beneficial to the borrower. When you opt for transferring your home loan balance to a new lender, you will be charged a processing fee from the new lender and service and administrative charges from the existing lender.
According to financial experts, the ideal time to opt for a home loan balance transfer is when your home loan is in the initial stages, or under five years of loan duration. As a rule of thumb, you should consider shifting the home loan if the remaining tenor is above 15 years, and the lender offers at least 25 basis points (bps) less than your current lender. Similarly, if your remaining tenor ranges between 10-15 years, you should consider switching your home loan only if the interest rate difference is above 50 bps.
After you have compared the terms of rates, fees, processing charges, and other details, negotiate with the lenders for the best deal. Check if the lender will waive or reduce any of the administrative, service, or processing fees. Make sure to read the fine print of the agreement before switching for a home loan balance transfer.
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