When taking a loan, individuals compare and find the best choice available in the market. However, it is possible that lenders with better loan terms may enter the market over time. So, to switch to a financial institution with a lower interest rate, a longer tenor or a better term a borrower applies for a home loan balance transfer.
It means transferring an existing home loan from one financial institution to another. However, whether it is a better option depends on several factors mentioned below.
What are the benefits of home loan balance transfer?
The following are the benefits or reasons why individuals should be choosing a home loan balance transfer:
- Option of top-up loan
If the reason behind a home loan balance transfer is financial burden, borrowers can also consider the option of a top-up loan on a home loan. Most lenders give out these loans at an attractive rate and over the existing loan after the balance transfer.
Moreover, these also do not have an end-usage restriction like a personal loan. However, before availing, one must make sure to know all about top-up loans on home loans.
- Better repayment term
The new financial institution will have a unique set of terms that may benefit the borrower. Moreover, since in home loan balance transfer, individuals are connecting with a new lender, they often seek better features.
- Lower interest rate
A lower interest rate is the biggest benefit of a home loan balance transfer, as the new lender will obviously be offering a home loan at a better rate and term than the existing one. This, in turn, reduces the financial burden of paying EMIs.
- Pre-approved offer
Many lenders give the benefit of pre-approved offers on secured and unsecured financial instruments to borrowers with good repayment histories. It eases the loan application process and lessens the processing time. Furthermore, borrowers can enter their respective names and contact numbers and log in to check their pre-approved offers.
4 factors to consider during home loan balance transfer
Borrowers not only feel burdened by higher interest rates but also by other crucial factors like loan tenor, transfer fees, terms etc. Details are as follows:
- Terms and conditions of the new lender
Prospective borrowers must always look at the new lender’s terms and conditions to clear any future trouble that may affect their finances. This can include hidden charges and help you determine whether it will be beneficial to transfer home loan overall.
- Loan servicing tenor
Switching loans from one lender to another is only beneficial when the risk-reward ratio comes into one’s favour.
For example, suppose borrower A has a home loan of Rs.50 lakh to be repaid in a tenor of 15 years at an interest rate of 7.4%. However, he gets it refinanced at an interest rate of 6.9% after 8 years. This lowers the bps by 50 units (7.4% – 6.9%). Thus, the individual saves an approximate amount of Rs.1,75,000 [(50 lakh x 0.5%) x (15 – 8)] overall.
- Negotiated interest rate
Before transferring, it is better to negotiate for a lower interest rate with the existing lender itself. If the lender finds he or she is a loyal customer with a good credit history and considerable repayment capacity, the institution may consider the request. As a result, borrowers can save processing fees, administration charges, application fees, prepayment and other costs.
- Home loan balance transfer fees
The process entails specific fees or charges, including legal fees, technical fees, processing charges, etc. In addition, there are government charges like MODT (Memorandum of Deposit of Title Deed) and MOE (Memorandum of extension). Thus, before availing the transfer, one must overweigh their savings from interest using a home loan balance transfer calculator.
The aforementioned section enlists all the factors you need to consider while choosing a home loan balance transfer and the benefits of availing the facility.