The Complete Guide To Home Loan Balance Transfers

Many home loan borrowers wonder how much they could have saved if their existing home loan had a lower interest rate. After getting a home loan to purchase their dream house, many borrowers find that they are spending too much on their home loan than others. Considering the high-interest rate and extended term of a home loan, even a .5% drop in the interest rate may result in considerable savings. Therefore, thinking about home loan balance transfer makes sense in this scenario. Here is a complete guide that can help make an informed decision and get the maximum benefit.

What are Home Loan Balance Transfers?

A balance transfer, also known as loan refinancing, means transferring a home loan’s balance amount to a new lender. Borrowers often transfer their existing loan to a new lender if they get a lower interest rate or better loan conditions with them.

When Does Balance Transfer Make Sense?

Below are a few situations when a balance transfer is an advisable option:

1. When a significant part of the loan tenure is remaining 

A balance transfer is the most profitable when the loan term is in its initial years. Transferring the loan by the loan term-end does not make much sense, as it won’t lead to significant savings for the borrower. 

2. When a significant amount of loan amount is unpaid 

A balance transfer makes good sense if a substantial amount from the home loan is still outstanding and the borrower gets a lower interest rate with the new lender. However, if the borrower has already paid most of the loan amount, transferring the loan would be useless.

3. Reduced Loan Cost

A lower interest rate is not the only thing to consider while transferring a loan. A home loan balance transfer incurs significant expenses the borrower has to bear. These include prepayment charges to the existing lender, documentation and processing charges for the new loan, etc. A borrower must consider a loan transfer only if the benefits are more significant than the costs. 

Benefits of Transferring a Home Loan

Those who apply for home loan transfer get several benefits, including the following:

Reduced Interest Rate: The most significant reason borrowers transfer their home loans is the reduced interest rates offered by other lenders. Transferring a loan to get a reduced interest rate saves cost on EMIs and interest outgo, thereby reducing the overall loan cost.

Adjusted Loan Tenure: As the borrower’s financial condition changes, they may want to adjust their loan tenure according to their repayment capacity. For instance, if their salary has increased, they may choose a shorter loan tenure with bigger EMIs to pay off the loan sooner and become debt-free.

Prepayment Facility: While transferring a home loan to a new lender, the borrower may prepay a part of the loan to reduce the loan amount without any prepayment charges. As a result, they minimise their loan burden and save on the loan cost through loan transfer.

Top-Up Loan: Getting a top-up loan on the existing home loan is feasible while transferring it to a new lender. A top-up loan proves to be a lucrative option if the borrower needs additional funds to repay the loan or fund other expenses.

Improved Credit Score: As the borrower reduces the interest rate and adjusts the loan tenure according to their repayment capacity, the EMI payments become more manageable. As a result, the borrowers improve their credit score with regular EMI payments and boost their eligibility. 

Understand the Loan Transfer Process

Here is a stepwise procedure to transfer a home loan:

  1. Compare lenders based on their interest rates, costs, and features.
  2. Talk to the existing lender and negotiate the loan terms to get a better deal on the current loan.
  3. After deciding to transfer the loan, request a NOC from the existing lender containing the loan details.
  4. Collect the property papers from the current lender and transfer them to the new lender. Don’t forget to get any post-dated cheques with the lender.
  5. Submit the required documents to the new lender.
  6. Repay the existing home loan and close the account. The new lender will pay the loan balance and collect it from the borrower in EMIs.
  7. Start with a fresh loan with reduced interest rates and better terms and conditions. 

A home loan balance transfer is a beneficial option for borrowers who want to reduce their interest rates and get better terms on their existing home loans. It helps save a considerable amount and makes the loan easily manageable for the borrowers in many ways, as mentioned above.