Home loan transfer enables borrowers, who are already repaying a housing loan, to grab hold of a better deal on their credit with a new financial institution. Furthermore, by opting for a balance transfer, an individual can ensure cost-effectiveness in terms of EMI payments and also better service.
What is a Housing Loan Balance Transfer?
It is the process of transferring the remaining balance – principal proportion – of a home loan from the existing lender to a new financial institution. Under this process of a home loan transfer, the latter repays the remaining principal amount of a housing loan to the former lender and assumes the role of the new lender.
Thereby, assuming you are the borrower in question, you pay EMIs for the transferred loan to such new lender at better terms. Typically, an individual only refinances their loan when another financial institution is offering lower interest rates for home loans.
Factors to Consider Before Opting for a Home Loan Balance Transfer
You must take into consideration a few factors that would aid you to maximise the benefits from a home loan transfer. These are –
- Timing of refinancing
The timing of refinancing a home loan is quintessential to maximise the profitability of balance transfer.
That is because, in the case of home loans, the amortisation schedule is set such that the principal proportion of EMIs is significantly lower than the interesting part. It gradually evens out, and then in the last lap of a repayment tenor, the principal portion is higher. Therefore, you must time your balance transfer when the interest outgo is maximum or at least higher than the principal part to benefit from it properly.
Ergo, ideally, you ought to carry out a balance transfer in the early or mid-stages of a loan tenor. This is how a home loan balance transfer helps you save money.
Conversely, opting for a balance transfer in the last 5 years of repayment tenor would reap no monetary benefits. Furthermore, you can use a balance transfer calculator to reckon the total profitability from carrying out a home loan refinancing.
- Interest rate and other charges
Another crucial factor to consider when carrying out a home loan transfer is by how much the new interest rate is lower to the existing rate. That is because only a marginal difference between two rates would hardly result in any saving owing to the other costs involved in a balance transfer. These costs include foreclosure charges as well as processing charge for availing a new loan.
Financial experts suggest that such a new interest rate must be at least 0.5% less than its existing counterpart to yield any financial benefit. As a side note, you should duly consider the other charges to exact your profit from such transfer. It is one of the most important things to keep track of when opting for a home loan balance transfer.
- Beware of teaser schemes
It is also crucial to remain aware of teaser schemes offered by certain financial institutions. These schemes lure customers by displaying a lower interest rate only to increase them after a specific period. Therefore, experts suggest steering clear of such teaser schemes and opting for home loans from reputed financial institutions.
On the other hand, some financial institutions offer added benefits like a top-up loan upon refinancing a loan.
Lastly, another critical thing to remember when opting for a home loan balance transfer is obtaining a NOC from your existing lender. This will help to avoid any hassles later.