A Home Loan is a long-term obligation and can financially drain your savings due to higher interest rates. A balance transfer is one of the easiest ways to deal with a high Home Loan interest rate. Read this article to find out how a Home Loan Balance Transfer works.
How to Opt for a Home Loan Balance Transfer?
A Home Loan balance transfer option is a moving option. A new lending institution takes over your loan account. Usually, the interest rate offered by a new lending institution is lower than your existing one, which is the driving factor of a balance transfer.
For this transfer of loan balance, a fee is charged. A Home Loan transfer charges include foreclosure of loan, processing fee, and stamp duty charges for the loan agreement. Before choosing a lender, check these charges.
How is a Home Loan Balance Transfer Advantageous for borrowers?
Let’s see the benefits of opting for a Home Loan Balance Transfer –
– A Top-up Loan to Meet Financial Objectives
The new lender also sanctions a top-up loan when opting for a Home Loan Balance Transfer. Borrowers can request a top-up loan of up to 25% of their loan amount.
– A Lower Interest Rate Equals Lower EMI
The overall benefit of a Home Loan transfer is to decrease the EMI cost. Borrowers count on a lower interest rate when looking to go further with a balance transfer. When the Reserve Bank of India (RBI) changes the policy rates, loan providers also reduce/increase the interest rates at different levels. In such situations, a loan balance transfer is an attractive option, especially for those who are unsatisfied with their EMIs.
– No Limit on the Balance Transfer
Many lenders offer the facility of a Home Loan balance transfer with no upper limit. This depends on how well you meet the eligibility parameters of the new lender.
– Negotiate the Terms
If you have a high credit score and a good repayment history, you can negotiate the terms of a Home Loan balance transfer. Using your good repayment history, you can get a lower rate of interest.
What to Consider While Opting for Home Loan Balance Transfer?
When you opt for a Home Loan Balance Transfer, consider the following –
– Timing of Balance Transfer
Just transferring the Home Loan based on the rate of interest may not help borrowers. The right timing matters. It would be best to transfer a loan within the first half of your repayment term. If you have already repaid half of the loan, it is better to wait till the loan maturity. Transferring a loan at the end of tenure may increase the financial burden.
– Type of Interest
Before jumping to the final decision of loan transfer, you should know about the new lender’s interest rate policy. Check whether they use a fixed or reducing method to calculate the interest rate. Fixed interest rates cost the borrowers more than reducing interest rates. Reducing interest rates may or may not change in future depending on market fluctuations. Therefore, it is crucial to know the method used for interest calculation before a loan transfer. The interest paid on a Home Loan can be claimed as a deduction up to Rs. 2 Lakh under Section 24, thus, tax saving on Home Loan.
– Foreclosure Charges
Like most borrowers, you may want to repay the loan partially with the excess amount you have. It is necessary to know the foreclosure charges with the new lender. Check if these charges will be levied before the balance transfer or after.
– Processing Fees and other Charges
The borrower will need to bear a few expenses associated with the process of the loan balance transfer, including processing costs, stamp duty, and other allied charges. These fees may differ based on your employment. For example, a salaried individual will pay different charges than a self-employed individual.
Thus, decide on a Home Loan transfer after going through the positives, negatives, incurred expenses, fees and your ultimate savings. You need to get a No Objection Certificate (NOC) from your existing lender before starting the loan transfer process.
