A feature that permits you to move your lender is a home loan balance transfer. The question is, why would you switch lenders? how does a home loan balance transfer help you? Of course, the most obvious solution is to lower your total interest outlay. A balance transfer allows you to lower your home loan interest rate. So that, your EMI. Furthermore, it enables you to obtain a sizable top-up loan at a cheap rate of interest.
What is a home loan balance transfer?
The process of moving the balance on your existing house loan to a new lender is referred to as a home loan balance transfer, as the term suggests. It could be for a reduced interest rate on a home loan, better borrowing terms, or even a top-up loan for other financial requirements. Whatever the cause, house loan balance transfer has emerged as a viable option for those with a home loan who want to lower their EMIs and improve affordability, or reduce their duration and get out of debt sooner.
A home loan is a long-term commitment that can last up to 30 years. This means that you’ll be stuck with the same EMI and lender for a long time. As a result, it’s critical that you’re satisfied with the terms and conditions in place, whether it’s in terms of other fees and charges or the transparency with which the processes and charges are carried out. Your EMI is, of course, the most important component in determining how easy it is to service the loan.
A reasonable EMI allows you to make monthly payments without overstretching your budget. A home loan calculator helps you to evaluate the EMI before hand. But, more often than not, we feel we would be able to pay a fixed amount as EMI with ease, but once the loan is started, the amount becomes a financial hardship. Unforeseen expenses aggravate the issue even more.
How Does Balance Transfer Work?
Obtaining A Loan Balance transfer not only saves money, but it also allows you to invest it in a variety of other ways. After all, getting a loan and buying a home is only the beginning. Borrowers who move their existing loan balance to another bank may receive better offers and services. There is no doubt that a balance transfer would lower your EMI payment; however, one size does not fit all, so finding the right one for you is critical.
The outstanding loan amount of your existing home loan in India is transferred to a new lender in a home loan balance transfer. And the new lender gives you the funds you need to pay off your old loan
To do so, the borrower must submit an application form to his current lender seeking a balance transfer, as well as an application to a new lender. If the new lender authorizes the takeover of the old house loan, the new lender will pay the existing lender the outstanding amount and start a new loan account with them for the same amount.
The present lender must release the property documents and give a no-due certificate to the borrower after the overdue money has been received.
All of this paperwork must be presented to the new lender, and the borrower must pay the new lender all of the remaining EMIs according to their terms.
Difference between home loan and home loan balance transfer
Basic differences of home loan and home loan balance transfer are,
The purpose of a home loan is to obtain the advantage of a fund for the purpose of acquiring a home that can be repaid over a specific time period. This money would be supplied with an interest rate attached to it. It aids in the purchase of a home. There will be a great deal of documentation to complete. The individual’s age and creditworthiness are quite important.
Home Loan Balance Transfer
Those who have been paying home loan EMIs with a bank for more than 12 months are eligible for this option. It allows consumers to transfer their existing loan to a bank with a reduced interest rate and better services. There is no transfer of ownership involved. It just transfers the home loan from one bank or NBFC to another for better terms. Individuals will be able to save more money with lower interest rates.
The Benefits of Balance Transfer
Nobody would be willing to move the risk of a house loan balance transfer to a new bank unless it was truly beneficial and reliable. The following are a few of the advantages of transferring your house loan balance:
Offers low interest rates
Because the lender has security in the form of a mortgage, the risk to the lender is low, and as a result, the rate of interest on a home loan is also low.
Less paperwork involved
Transferring a house loan from one bank to another is not a difficult or time-consuming process; it can be done quickly and with minimal paperwork.
Many people wonder if a balance transfer will prevent a loan from being pre-paid. Yes, even if you did a balance transfer on your house loan, you can pre-close it at your convenience.
Helps you get better terms on your plan
The terms of the loans offered by different lenders differ. If you have a house loan with conditions that aren’t favorable to you, moving your loan to a lender who offers the same loan at your preferred terms can help you out.
High top up value
Top up value offered will be higher in comparison to what a house loan bank has to offer. The loan payback will be faster with fewer interest payments; this will aid in obtaining a large sum of money for top-up needs.
Reduction in monthly EMI
Depending on the bank you choose to move your house loan to, you might save up to 5% on your monthly EMI payment.
No additional charge
Only fee banks charge a processing fee for home loan balance transfers, and there are no other costs associated with the transaction.
Healthy CIBIL score
For a balance transfer, there are no CIBIL criteria. This will assist you in maintaining your CIBIL score.
Things You Must Consider Before Transferring Your Home Loan
Though refinancing a house loan can be advantageous and the process is simple, there are a few things to consider before transferring your loan. The following are a few things to consider about:
New lender’s credibility
When a new lender offers a reduced interest rate, it’s tempting to get carried away. Before you start transferring your house loan, be sure the new organization is reputable. Before transferring your debt, it is critical to conduct a thorough background investigation on the organization.
The remaining tenure on your existing loan:
It is not worthwhile to choose a house loan balance transfer in the second part of your term. If you just have a few years left to pay off your existing house loan, you must have paid off all of the interest that was due during the loan’s early years. Refinancing your loan may not be the best option in this situation. You will increase the interest costs on your new loan if you get a new loan to pay off your previous debt within the last few years of its term. Always refinance during the first half of your loan term.
Terms and conditions of new loan
The terms and conditions of the new home loan must be understood. Be sure to check the details. While a low-interest housing loan may appear appealing, it’s critical to completely comprehend the terms and circumstances offered by your new lender. If the terms and conditions are favorable, consider refinancing your mortgage.