Financial planning is necessary for large investments, like a home purchase. Most individuals prefer home loans as financial aid with a long-term repayment tenure and make prudent decisions while selecting a lending institution. Still, this long-term commitment may become a burden with unsatisfactory terms. It may be due to market rate changes, the institution’s policy, etc. The solution is a home loan balance transfer.
Several borrowers turn to balance transfers to save money. There are many instances of loan transfers needing to be corrected. Therefore, before deciding, borrowers must gauge if a balance transfer is a good idea. Go through the crucial aspects of the home loan balance transfer in the post.
Understand Home Loan Balance Transfer
Home loan balance transfer refers to transferring a home loan account to a new lending institution after closing it with the current lender. The new lender looks at the transferred loan as a new account and offers new loan terms per the borrower’s eligibility. This entire process of switching home loans and lending institutions is called a home loan balance transfer.
How Home Loan Transfer Benefit Borrowers ?
Key benefits of home loan balance transfers are as follows that make many borrowers opt for it:
- Reduced Interest Rates and EMIs
Generally, most borrowers opt for a balance transfer for a lower interest rate than the current lender. Low-interest rates mean reduced EMIs. With a slightly decreased interest rate, the total cost of the loan decreases considerably as most home loans are sanctioned for a high amount of up to 90% of the property cost.
- Adjusted Loan Tenure
Borrowers can adjust the loan tenure with the new lender depending on how well they meet the eligibility criteria of the new lender. Banks allow borrowers to transfer their home loans if they have paid at least twelve EMIs and have a good credit history. The maximum loan tenure can be 20 years. Borrowers can no longer pay heavy EMIs associated with their old home loan accounts.
- Negotiate for Favourable Loan Terms
The new lender requires the borrower to meet the eligibility criteria for the loan transfer. If the borrower meets the eligibility criteria well and has a good credit score, they can negotiate the loan terms with the new lender.
- Have a Quick Top Up Loan
Borrowers who require additional funds for home renovation or repairs need not worry. It is easy to avail of a top-up loan with the new lender. Most lenders offer a top-up loan facility with the home loan balance transfer. Top-up loans are essential when meeting a financial emergency during the home loan tenure, as many find it challenging to get a loan with an existing large loan. There is the tax benefit also on the top-up loan. They can get the tax advantage if the loan amount is used for either home renovation, construction, or extension.
Considerations For Home Loan Balance Transfer
- Charges Involved
The primary aim of a home loan balance transfer is to reduce the loan cost. Borrowers should consider the processing fee and other charges before transferring the loan. New lenders may charge home loan processing fees, balance transfer fee, stamp duty, and other associated fees to process the loan transfer. Borrowers should consider all the expenses allied to the transfer process.
- The Right Time for Loan Transfer
Timing of home loan transfer is important to reduce the loan cost. The following are the ideal scenarios for opting for a loan transfer:
- Opting for a loan transfer is beneficial for borrowers during the earlier stages of a home loan. If the loan tenure is near the end, more than the savings on loan costs might be needed to justify the expenses incurred in the loan transfer process.
- Borrowers with a substantial loan amount to repay and reduced interest rates can help borrowers immensely. Opting for a balance transfer is ideal.
Thus, a home loan balance transfer is ideal when the borrower has a clear payment strategy. Determine the real cost of the new loan with the new lender and calculate savings on overall interest outflow before proceeding. Renowned lenders provide a home loan balance transfer calculator to help customers estimate their savings with their loan balance transfer facility.