A home loan balance transfer is the procedure of shifting a home loan from one bank or financial institution to another. Yes, even if you opt for a home loan from one financier, you can transfer the whole loan outstanding to another lending institution, if you wish. Now, why’d someone desire to do this? The most prevalent reason to transfer a Home Loan to another lender is if the other bank is offering lower interest rates or an improved proposition, as compared to the existing lender. If lower home loan interest rates are available elsewhere and you are still paying a higher interest with your existing lender, then transferring a home loan makes sense completely.
But, balance transfer loans aren’t something that you can get with no prior consideration. There are some factors that you need to keep in mind before opting for a balance transfer. Let’s understand through this article a few situations whereby doing a balance transfer will be beneficial.
When should you consider a home loan balance transfer?
Lower Home Loan Interest Rates
A lower rate of interest helps save up on EMIs, as well as the home loan interest paid toward the home loan repayment. Thus, if home loan interest rates are cut, and one more financial lender is offering a home loan at a significantly lower rate, then consider transferring a home loan to the new lender, owing to the reduced home loan balance transfer interest rate. This is going to significantly reduce your loan burden, by lowering EMIs, and also save up on the interest amount on your home loan.
The type of financial institution to which you are considering transferring your home loan matters a lot. Typically, banks offer a rate of interest that is associated with an external benchmark that is monitored by the RBI. Hence, the change in the rate of home loan interest is transmitted quicker, whenever there are changes in the external benchmark rate. On the other hand, HFCs/ NBFCs offer a rate of interest, which is linked to the Prime Lending Rate (PLR), which is their internal benchmark rate.
Several financial lenders offer external benchmark linked, i.e., repo rate associated with the rate of loan interest on home loan balance transfer, which can help make a more informed decision.
Cost of Balance Transfer
Even though lower interest rates offered by other lenders are a valid reason to transfer your home loan, you cannot keep transferring your loan, each time a lender offers a lower home loan interest rate. There are certain terms and conditions of balance transfer as well as charges involved for a home loan transfer that you need to consider. If you are comfortable with these costs and terms and conditions, you can go ahead and transfer the loan.
Long Loan Tenor
Proceeding with a home loan balance transfer will make sense if the outstanding loan tenor is still significant. Generally speaking, you are unlikely to benefit from a home loan transfer, if you have only a couple of years remaining on your existing home loan. In the final years of your home loan tenor, the cost of the home loan transfer will exceed the interest benefit that you may have.
Authorization of Property
Before blindly going ahead with a home loan balance transfer, you need to make sure that your loan property gets fully approved by a new lender. Each lender will have its protocols when it comes to property authorization, so even if your existing home loan lender had approved the property, your new lender will also again do the same, per their protocols.
Top-up Loan
Home loan borrowers wanting a home loan balance transfer can get a provision of a top-up home loan along with a home loan balance transfer. The top-up loan amount can be used for meeting any personal or professional requirements without any end-usage limitations. The top-up loan amount might vary from one lending institution to another based on the overall eligibility of the applicant. Hence, home loan borrowers who are unable to avail of top-up home loans from an existing lender or are charged a very high-interest rate for it can opt for a home loan balance transfer. However, a good idea would be to use a home loan eligibility calculator to assess eligibility before applying.
Documents Needed for a Home Loan Balance Transfer
- KYC Documents: PAN and Aadhaar Cards and Proof of Residence
- Proof of Income: Payslips and Form 16 (for salaried borrowers), last three years’ ITR with financials (for salaried, professionals, and self-employed), and last six months’ bank statements
- Additional Documents: A latest letter stating the principal outstanding, list of documents from an existing financial lender, and the loan repayment track record
Concluding Thoughts
A home loan balance transfer is a crucial decision when it comes to a Home Loan. You need to properly assess all the aspects of the process before proceeding. You wouldn’t wish to be in a position where you proceed with the paperwork and transfer the loan to simply realize that your savings on home loan interest are not as significant as you imagined them to be. Hence, you need to first calculate the home loan balance transfer savings and to do so, consider all the factors and then opt for a home loan balance transfer. With authentic financial lending institutions, the balance transfer home loan procedure is simple and, at the same time, convenient. Learn more about the terms and get your home loan transferred, today.
