Transferring your Home Loan outstanding balance to a new lender is known as Home Loan Balance Transfer. The primary reason to opt for this process is to benefit from the lower interest rates. Additional benefits include superior customer service, and the need to take a top-up loan (if not ready to be financed by the original lender).
Balance Transfer is resorted to by Home Loan borrowers to reap the benefits of fall in interest rates. In recent years, Home Loan interest rates have displayed a declining trend. Further, with banks adopting MCLR on new Home Loans as for the base rate, there is a significant difference in the prevailing interest rate compared to the rate of interest when you had initially taken the Home Loan. In such a scenario, opting for Home Loan Transfer can give you sizeable savings in interest. There is no restriction on who can choose balance transfer and when. If you’ve till date paid your EMIs on time, then the Home Loan transfer process is very simple.
Why opt For Balance Transfer?
Home Loan balance transfer is very common. This option is exercised to:
- Rake in the Benefits of Lower Interest Rates
Home Loan interest rates are fluctuating. Especially with the introduction of MCLR as the base rate, any repo rate cuts have a cascading effect on the Home Loan interest rates. In such circumstances, you can monetize the fall in interest rates. Whatever is the loan balance outstanding, it is transferred to a new lender and you pay lower interest rates on the transferred balance. Overall, your total interest outgo reduces, helping you to settle your Home Loan account earlier.
- Gain Better Service
When you apply for Home Loan, you choose a lender based not only on the interesting offering but the service as well. If a new lender offers you better service, compared to your current lender who does not give an ear to your queries, you can opt for a Balance Transfer.
- Avail a Top-Up Loan
You need funds to make certain additions to your home and apply for a Top Up Loan. Your current lender might not be willing to give you a Home Loan Top Up. The best way to source a Top-Up loan is by opting for a Balance Transfer and availing a Top-Up loan from the new lender.
- Need for Better Credit Rating
A good credit rating always fetches you a loan at good interest terms. A better credit rating for an individual is also a concrete benefit of Balance Transfer.
While balance transfer does offer benefits, do not jump on the bandwagon without carrying out a proper cost-benefit analysis. Weigh the Home Loan transfer charges against the interest savings before you decide to opt for Home Loan Balance Transfer. Also, check what the remaining loan period is.
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Home Loan Transfer Charges
When you move between lenders you will have to pay transfer charges on the outstanding loan amount, in addition to paying prepayment charges to the current lender. To the new lender, you’ll have to pay processing fees, stamp duty, and other charges that would apply to a new Home Loan.
Regardless of these charges, opting for a Balance Transfer often results in substantial gains, when you take it from the right bank or NBFC.
The Right Time To Transfer Your Home Loan
First and foremost, before choosing to go for Home Loan Balance Transfer, check what is the unpaid amount on the loan and the remaining loan tenure. If you’re towards the end of the loan, where you would have paid off almost the whole interest component, there is no sense in opting for the transfer as the costs associated with the transfer will not be substantial to match the saving in interest.
However, if you’re in the initial years of the Home Loan, an interest rate cut can give you substantial savings in the long run. All that you would need to pay is the prepayment charges.
The thumb rule is to ensure that you gain in the process of Balance Transfer. If there is no tangible benefit, stick to the current lender. You can probably bargain for a better interest rate and earn the save.
Calculate the costs and match it against the savings. If the savings are more, go for it. Else allow your loan to continue with the same lender.