Due to the rising real estate prices across all major cities in India, it has become next to impossible to make an outright purchase of a residential property. That is why you need to take a Home Loan to be able to afford your dream home.
You would have done all the research to identify the most suitable Home Loan offer from a financial institution. The rate of interest chargeable on loan is attached to the base rate and might vary during the tenure of the loan as per the policies of RBI (Reserve Bank of India) or the Government of India.
The tenure for a Home Loan extends up to 20 years in most cases. During the said tenure, you must repay your EMIs (Equated Monthly Instalments) as per loan schedule to avoid any penalties and charges. As the interest component forms a significant part of your monthly expenses, you are always on the lookout for ways to save money on the same.
Now in some cases, you will receive a call or would see an advertisement somewhere, where another lender is offering significantly lower interest rates on Home Loan and are inviting you to get in touch to Apply for Home Loan Balance Transfer.
What is Home Loan Balance Transfer?
It is a process whereby you transfer the unpaid principal amount of your loan to a new lender, who in turn pays off your remaining dues to the existing lender. This way you end up with a new loan with different repayment tenure, interest rates, terms and conditions.
Home Loan Balance transfer is a standard way to reduce your interest expenses, as you are transferring your loan into a low interest-bearing loan. Almost every financial institution in India offers the facility of Home Loan Balance Transfer (HLBT), albeit the terms and conditions vary between the lenders.
The Process for Home Loan Balance Transfer
Following is a brief overview of the process involved in HLBT:
- When you have identified a new lender, you need to fill in your application and provide all the necessary documents.
- You will also need to obtain a foreclosure letter and list of documents from your existing lender.
- The new lender will check your credit score and other documents to determine your eligibility and can also contact the existing lender regarding the track record of your loan.
- After the new lender is satisfied, you will need to sign the loan agreement. The new lender will make the payment to your banker and would take the property documents under his possession.
- Your existing banker will issue the NOC (No Objection Certificate) and the process is complete. Now you need to make payment of EMIs according to the new loan agreement.
Points to Consider Before Opting for a Home Loan Balance Transfer
There are a number of factors to beconsidered before applying for a Home Loan Balance Transfer to make sure that you do not regret the decision later. Some of the significant questions that you should ask yourself before you opt for HLBT are:
1.What is the difference between interest rates?
The lower interest rate is the single most significant deciding factor when deciding on HLBT. You should only consider taking this step if the difference in interest rate is more than 1%. If the difference is less than 1%, it is not worth your effort and time because significant costs are involved in the process of the balance transfer.
2.Have you read and understood the terms and conditions?
When you apply for a Home Loan, the financial institution sanctions your loan along with a number of conditions. It might be included in your loan agreement that you cannot transfer the loanuntila specified period of time. Similarly, you need to understand the terms and conditions described in the new loan agreement to make sure that there is no clause that is detrimental to your financial position.
3.What is the remaining tenure of the current Home Loan?
Due to the significant costs involved in the process of a balance transfer, you need to consider the fact that how much tenure is remaining. If the remaining tenure is below 5 years, then it is not worth all the hassle because the costs involved far outweigh the benefits realised.
4.Have you asked your existing lender?
You need to discuss your plans with your existing lender. They would hate to let go of an existing customer and might offer you an even better deal. Usually, they charge around 1% fee to transfer your loan to current interest rates. This can save you a lot of hassle.
5.Have you done a cost and benefit analysis?
Do not rush into making a decision. Sit down and draw a cost and benefit analysis to ascertain if the whole process of Home Loan Balance Transfer is worth all the effort. A balance transfer is precisely like applying for a new loan; you need to provide all documents, pay the processing fees, filing charges,and so on. So, take all these costs into consideration before making a final decision.
If chosen wisely, HLBT can help you save a significant amount of money in interest payments. But you must consider all aspects carefully and only then take a decision.
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