The current policy rates by the RBI are expected to keep housing loans affordable in the coming months. However, any minor alteration in the interest rates can significantly affect home loan debt due to sizable value and a long tenor. However, a facility like home loan transfer allows existing borrowers to reduce the EMI and interest burden, irrespective of the market condition.
The home loan market in India registered a 9.6% year-on-year growth annual portfolio outstanding as of the third quarter of FY2021. In December 2020, the outstanding of this sector stood at Rs. 22.26 lakh crore.
In such cases, a home loan balance transfer can be beneficial when planned at the right time. Thus, before opting for a home loan balance transfer and maximising its benefits, individuals need to know the exact time for such a transfer.
Know the best time for a home loan transfer
- When there is a possibility of an interest rate reduction
As stated above, the interest rate fluctuations can significantly affect an individual’s total housing loan liability. Hence, it is ideal to go for a balance transfer when there is a possibility of a rate reduction in future.
In this regard, another point that one needs to consider is the selection of a lender. A financier who extends a competitive home loan interest rate should be the pick as it can significantly reduce its debt.
- When the repayment is in its initial stages
The purpose of a balance transfer is to opt for an affordable home loan interest rate that reduces the total interest burden. Therefore, it will be futile if a borrower decides to shift the credit in later stages when the lion share of interest is already repaid.
Instead, one can opt for this refinancing in the early stages, preferably after the initial few years of repayment. For instance, your current home loan is at 10% with a repayment tenor of 20 years. Now, if you shift to a lender after 2 years that offers 8%, you will save a considerable 2% on your payable for 18 years, which can be a significant amount.
- When the cost benefit analysis gives a positive result
Performing a cost benefit analysis is imperative before considering a home loan transfer. Since opting for this refinancing facility includes foreclosing the current loan and starting a new one with a separate lender, it will incur a hefty cost.
Therefore, individuals should consider these additional charges and compare them against the savings that a loan transfer offers. It will help borrowers to understand the final savings that they are making. Individuals can take the assistance of a home loan balance transfer calculator for this purpose.
For instance, a balance transfer is costing you Rs.10,000 in additional charges, and you are making a saving of Rs.20,000 in total. Therefore, your ultimate savings from this move is Rs.10,000, which is not a lot for debt like a home loan. In such cases, going through the hassles of loan transfer may not be worth it.
- When there are better loan terms on offer
Besides the interest rate and tenor, a home loan includes several other terms. Therefore, opting for better loan terms with another lender can also reason home loan refinancing.
For instance, repayment options can be one such reason. For example, your current lender is charging a significant fee for part payment facility and foreclosure. At the same time, another lender is extending a part payment facility and foreclosure for free of cost. In that case, the second financier can be an ideal choice for you.
Besides loan terms, better customer service can be another reason to go ahead with refinancing.
- When there is a top-up loan facility available
Home loan top-up facility is another major reason for opting for refinancing. Even though it is not exactly aligned with the timing, it helps borrowers access additional funds over their current housing loan without the need to meet home loan eligibility afresh. Moreover, such funds come without usage restrictions, and one can utilise these funds to meet an array of financial requirements
Additionally, the interest rate on this fund is close to that of home loans, so it remains affordable. Also, the tenor here is aligned with the home loan, so the repayment remains hassle-free.
Also, leading HFCs offer pre-approved offer that makes this process quick and stress-free. Such offers are available on multiple financial products like home loans, loan against property, etc., and borrowers can check their pre-approved offers by submitting their contact information and names.
Home loan transfer is a convenient way to shift your credit and avail better terms against it. Now, once borrowers have identified the correct time for it, they can get in touch with a lender of their choice and initiate formalities to complete it seamlessly.
