How is Home Loan Balance Transfer Different Than a Home Loan?

Home Loan Balance Transfer 

Although taking a loan to buy your house may sound like a dream come true, it may not always have the happy ending that you deserve. You may have found the lowest rate of interest while applying for a Home Loan, but interest rates keep fluctuating, and therefore in a few years you may find a loan that has a lower interest rate.

Most often the rate of interest for a Home Loan is between 9 and 14% which in the long run can add up to a substantial amount. Hence, if the interest rate reduces by even 1%, it can add up, and you may wish that your rate of interest was lower.

The best way to do this is to opt for a Home Loan Balance Transfer. This is when you can transfer any unpaid principal amount to another bank. This way the new bank will give the old one that had initially extended the loan the outstanding amount, and you would have to pay the new bank the EMIs (Equated Monthly Instalments) at the reduced rate of interest. A Home Loan is when you borrow money from a bank to pay for a house that you want to buy. Whereas a Home Loan Balance Transfer is when you transfer an existing Home Loan to another bank. Almost all banks and Non-Banking Financial Companies (NBFCs) have Home Loan Balance Transfer Offers that can help you.

However, before you transfer a loan, you need to do a cost-benefit analysis that would help you find out if the transfer would be worth it. Your decision about balance transfer should depend on the difference between the interest rates and the tenure of the loan that is remaining. If you do not have a significant amount to pay back and your loan is getting over in a few years, then it does not make too much sense transferring the loan.

Differences Between Home Loan Balance Transfer and Home Loans

• Lower interest rates: If you had taken a Home Loan at least five years back then the most economical interest that you could have gotten then would be around 10% p.a. How would you feel now if the rates are approximately 8.5%? With such a vast difference in the interest rates, it makes a lot of sense transferring your Home Loan to the lower interest institute.
• Prepayment: When you pay back your loan before the time, the lender of the loan will lose out a lot of the interest. In this case, they charge a prepayment penalty that would make up for their loss of interest. Today, many banks are doing away with this charge, and hence you will save a lot regarding both interests as well as prepayment penalties.
• Lower EMI: When you take a Home Loan, you are borrowing a sizeable principal amount. In turn, the EMI (Equated Monthly Instalment) is also large, and most people pay almost half their salary as EMI. A Balance transfer can result in at least 5% less EMI every month. This would add up to a significant amount in the long run. This amount could be kept as saving or it can be used later for something that is more important.
• Better top-up options: When you have better rates and EMI that you can easily afford you have better chances of getting a higher amount of top-up loan that you can get.

The Process of Home Loan Balance Transfer

Cost-benefit analysis:

• It is best to ask yourself these critical questions before you choose to transfer your Home Loan
• Is the loan in a fixed rate period?
• Is there a long tenure for repayment?
• Is there any hidden costs?

If you get answers to these questions that satisfy you, then you can consider choosing to transfer your Home Loan.

No objection certificate from your bank

Before you can transfer your loan to the new bank, you would need to ask your current bank. Along with that, you would also need to get a foreclosure letter, the history of your payments, and list of the documents that the bank has.

Apply to a new bank

After you have all of the documents required for the application you have everything that you need. During this process, you can also top up some of the balance of your Home Loan so that you can reduce the tenure of the loan.

Credit approval

The new bank again evaluates the transfer application, this can take a few weeks, and the new bank would do a thorough background check before approving. They recheck your loan, check your credit history, and check the authenticity of your ownership. They may also require you to provide you with more documents.

Documentations

This is the last process that you need after you Find a Home Loan Balance Transfer Offer that suits you. Lastly, you finish the documentation process and start paying the EMI to the new bank.

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