A home loan balance transfer is an ideal way to avail lower interest rates offered by another financial institution or non-banking financial companies (NBFCs) and reduce your EMIs. With such a facility, you simply transfer your existing home loan account from your current lender to a new one.
The majority of renowned lenders offer this facility to help borrowers avail favorable terms and benefits that the current one may not be offering.
Meaning of Home Loan Balance Transfer
Home loan transfer refers to the process by which a borrower transfers the balance amount of his loan from their current lender to a different lender. It involves a transaction between both lenders.
Home loan takeover by a different financial institution only happens when both the companies agree on the terms and conditions after negotiations.
Now, there can be several reasons why a borrower might want to go for a home loan transfer to a different lender on their home loan.
Some of them are listed below.
- High-interest rates: A borrower can choose to transfer the balance of their loan from a lender that charges high-interest rates. Therefore, if you are a home loan borrower, a balance transfer can save you a lot of money in interest payments.
- Unsatisfactory services: If you have reasons to believe that your current lender is not providing services at par with other companies, it is best that you transfer the unpaid amount of your loan to a lender that provides better services and facilities.
- High EMI: If you find home loan EMI which are too high for your current financial obligations, a balance transfer can help reduce it. Shift to lenders who offer lower interest rates on the loan or higher tenure.
- Tenure: You can benefit from a home loan balance transfer if you think the tenure of the loan with your current lender is too long and you can pay the loan off in a shorter tenure.
The longer the tenure, the more you have to pay interest, thereby increasing the total cost of the home loan. In cases where borrowers might encounter the need to increase their tenure, a transfer is a viable option.
- No additional facilities: Your current lender might not provide you with facilities that other top lenders currently provide, such as top-up loans, online account management, part-payment, foreclosure, etc.
The bottom line being, you should opt for a transfer if you are unsatisfied with your current lender and choose a more suitable lender accordingly.
However, you must undertake a thorough cost-benefit analysis that takes into account factors like fees and charges, remaining tenure, unpaid amount and interest rate reset in case of MCLR linked home loans.
You must understand MCLR based home loans have interest rates that are reset by the financial intuitions at regular intervals.
You can use a home loan transfer calculator to get accurate information regarding your balance transfer. This calculator tells you the amount you are going to save, the top-up loan you are eligible for, and your new amount. You only have to provide a feed a few data into the calculator like –
- Existing financial institutions of your home loan.
- Location of your property.
- Starting month and year of your loan.
- Total sanctioned amount.
- Existing loan tenure.
- Existing rate of interest.
- New rate of interest.
Do make sure to check the home loan fees and charges attached when you transfer the balance. The new lender may also need you to provide all the necessary documents you submitted when applying for a loan.
Use a home loan eligibility calculator to check the amount you are qualified for based on your income, existing debt, and other factors if you are going to apply for one.