With the RBI slashing its repo rates and financial lenders consequently lowering their interest rates, it is time for existing borrowers to check if they are unnecessarily servicing higher EMIs.
If they find that their lender is levying a higher interest rate, individuals can easily opt for a home loan transfer or a balance transfer to lower their repayment liability.
With this facility, borrowers can shift their remaining housing loan amount from their current lender to a new one. While the primary reason behind this transfer is to avail lower interest rates, borrowers can also shift lenders to avail better repayment options or improved customer service.
Nonetheless, before moving ahead with it, one should understand its advantages, the process, and other associated factors to avoid facing any difficulties.
Top 4 advantages of home loan balance transfer
Here are some benefits of opting for a home loan transfer –
- Competitive interest rates
One of the primary reasons to opt for a balance transfer is to avail of better home loan interest rates. Typically, interest amount constitutes a significant portion of loan repayment and being a long-term financial commitment, any alterations to it can have a noticeable impact on EMIs.
For instance, you have a housing loan of about Rs.20 lakh at a 9% interest rate for 20 years, where your EMI is about Rs.18,000. After repaying it for about a year, you have opted for a balance transfer at an interest rate of 7%. In this case, your unpaid loan balance will be around Rs.19.5 lakh, and the EMI will come down to about Rs.16,000. Therefore, you will enjoy monthly savings of about Rs.2,000.
Since housing loans are long-term financial commitments, this small change will result in substantial savings in the future. Since this example provides an estimated overview, one can refer to home loan balance transfer calculator for more accurate results.
- Better repayment terms
Another notable advantage of a home loan balance transfer is the improved terms of repayment. Since every lender has different repayment options along with loan terms and conditions, it can be difficult for a borrower to match it after availing of a credit. In this regard, this particular process of shifting the outstanding can help him/her.
With this procedure, a debtor can find a financial institution that offers repayment and loan terms that suits his/her needs.
- Charges on foreclosure or prepayment
Financial institutions levy a charge on prepayment and foreclosure on home loan. While computing the cost-benefit analysis of a balance transfer, one needs to factor in these additional costs. Despite the charges, if a borrower is saving a considerable amount, a loan balance transfer can be a good option.
Moreover, a point to remember here is that borrowers should read the fine print of a loan offer to check if a particular lending institution is imposing such charges or not. Certain HFCs extend housing credit without collecting these fees; hence, borrowers can search for them as well.
- Top-up credit
Another noteworthy advantage of a home loan transfer is the availability of top up loans. Lending institutions extend this facility to the borrowers opting for this facility as an added benefit.
Top up loan are usually offered based on the total principal repayment. Nonetheless, the amount and details can vary from one lender to another. This particular credit comes with no usage restrictions and allows debtors to fund an array of their expenses, be it personal or professional.
The repayment terms and interest rate on this additional advance are in line with the existing housing loan.
Apart from these notable advantages, lenders often extend additional benefits that can further increase the convenience of a borrower. Pre-approved offers are one such facility.
Available on a series of financial products like housing loans, loan against property, etc., this particular facility streamlines the loan application process and saves time. Individuals can now check their pre-approved offers online by providing their name and contact number.
With the online application process, it is not difficult to apply for a balance transfer. However, one should go through the home loan eligibility criteria associated with it to avoid the chances of rejection.
Home loan transfer has presented an opportunity for individuals to shift their outstanding to a lender better suited to their needs. Nevertheless, this process includes legalities, which applicants must learn in advance to avoid any complications.