What to Consider When Deciding Whether to Transfer Your Home Loan Balance
After the Covid-19 pandemic, to give a boost to the sinking real estate sector, the Reserve Bank of India reduced the Repo Rate to the lowest it had been in a long time. However, the real estate sector has now revived and therefore, the Reserve Bank of India is slowly increasing the Repo Rate. All home lenders are quick to pass on the effects of Repo Rate hikes to borrowers but do not always pass on the benefits of Repo Rate cuts to borrowers.
The recent Repo Rate hikes by the RBI has led to home loans becoming expensive and borrowers who are on floating interest rates may be finding it difficult to afford their current EMIs. If that's the case, they can benefit from a home loan balance transfer.
What is a Home Loan Balance Transfer?
The home loan balance transfer facility is a facility offered by most lenders these days. Using this facility, borrowers can transfer their home loan from their existing home loan lender to another offering better loan terms and conditions. In the majority of cases, borrowers opt for a home loan balance transfer when another lender is offering them a low interest rate home loan deal. However, sometimes, borrowers also opt for a home loan balance transfer when they wish to change their interest regime from floating to fixed or vice versa or want to extend or reduce their loan tenor.
The home loan balance transfer facility is a highly beneficial one. However, it only proves truly beneficial when availed of at the right time. There are a few things that borrowers must keep in mind when opting for a home loan balance transfer. Read on to know more about these things.
Things to Consider When Opting for a Home Loan Balance Transfer
1. Check and Negotiate with Your Current Lender
A borrower can opt for a home loan balance transfer only if their current lender permits. Many lenders have a clause in their loan agreement that forbids borrowers from transferring their loan to another lender. So, to start with, check with your current lender if they are okay with you transferring your loan to another lender. To transfer your home loan successfully, you will need a No Objection Certificate from your current lender. In the absence of this certificate, you won't be able to transfer your loan to another lender.
Further, keep in mind that a home loan balance transfer involves a fee. So, if you can negotiate with your current lender and agree with them to offer you a lower interest rate, you will be able to reduce your EMIs as well as the cost of borrowing the loan and save yourself from having to pay a hefty home loan balance transfer fee. So, do not apply for a home loan balance transfer before first negotiating with your current lender.
2. Do Thorough Research
If your current lender denies your request and you wish to opt for a home loan balance transfer, do thorough research. This means talking to as many lenders as you can. Reach out to each one of them and negotiate with them for a low interest rate. Make enquiries about the lender, their reputation and how they treat their customers. In the end, go with the lender offering you the most lucrative deal.
3. Do a Cost Benefit Analysis
If you are on a floating rate of interest, your current lender cannot charge you a penalty in case you decide to foreclose your loan. However, if you are on fixed interest rates, your lender may charge you a penalty, which can be up to 3% of the pending loan amount. Further, you may think that you are only transferring your home loan. However, your lender will see your home loan balance transfer application as a new home loan application and therefore, they will charge you a home loan processing fee. This home loan processing fee ranges from .5% to 1% of the total home loan amount. Since home loans are big-ticket loans, the home loan balance transfer processing fee invariably turns out to be a considerable amount of money. Owing to the fees and charges involved, a home loan balance transfer proves lucrative only when opted for during the early years of loan repayment. Ideally, to maximize benefits associated with a home loan balance transfer, one should opt for the home loan balance transfer facility when the remaining home loan tenor is at least 10 years and there is at least a 50bps drop in the interest rate being offered.
4. Check Your Home Loan Eligibility
Even if you are applying for a home loan balance transfer, your lender will treat your home loan application as a new application. This means your home loan balance transfer request will get approved only if you meet your new lender's home loan eligibility criteria. So, before initiating the home loan balance transfer process, go to your chosen lender's website and check their eligibility requirements. Apply for a balance transfer only if you meet these requirements or else your application will meet with rejection.
5. Go Through the Terms and Conditions of the Loan Carefully
When your home loan EMIs are high and you are finding it difficult to afford them, a low interest rate seems like the answer to all your problems and sometimes, it is. However, in your hurry to switch to a lender offering low home loan interest rates, do not make the mistake of signing the loan agreement without reading all the terms and conditions carefully. Look for hidden charges. If there is a clause that you do not understand, have your lender's representative or a home loan expert explain it to you but do not sign the agreement until and unless you understand everything.
Final Words
The home loan balance transfer facility is a highly beneficial one, however only when the remaining tenor is at least 10 years and there is at least a 50bps difference in a borrower's current interest rates and the interest rate being offered to them. Further, if you are planning to go for this facility, keep the points mentioned in this article in your mind to avail yourself of the most lucrative deal.
# This is a guest article authored by Bajaj Housing Finance. For any enquiries or details, you can visit the author's website.