Buying your own house is a major life decision. However, with property rates soaring with time, it is increasingly becoming more difficult to self-finance the entire value of the property. This is where banks and financial institutions step in to help in the form of home loans. Home loans are usually large-value and long tenure loans because of the substantially high property values. Most of us, therefore, spend a good number of years repaying our home loan. During this period, we might want to move ahead with the possibility of a home loan balance transfer. Before we make a big financial decision such as this, it is useful to understand what a home loan balance transfer is and how it works.
What does home loan balance transfer mean?
Simply put, a home loan balance transfer is a process by which your housing loan can be taken over from one bank or financial institution to another bank or financial institution. Let’s say you have an existing home loan with Bank X offering a certain rate of interest. Five years into the loan repayment tenure, you come across another bank, Bank Y offering a better rate of interest for your loan amount. Based on your calculations, you will be financially better off if you transfer your loan to Bank Y. Here is when you can avail of the home loan balance transfer facility, a simple refinancing facility. With the help of a home loan calculator, you can easily compare your costs and benefits of being a borrower with Bank X or Bank Y. Today, almost all lenders offer this facility to their borrowers, and it has become increasingly smooth to execute this transfer.
Why should you transfer your home loan?
There are several reasons why a borrower could opt for a home loan balance transfer facility in the middle of their tenure.
- Lower rate of interest: One of the most common reasons for this is a lower home loan interest rate offered by the second bank or financial institution in question. Home loans comprise large principal amounts, and thereby greater interest payments. It is logical that borrowers would choose a lower interest rate loan and minimize their equated monthly instalment (EMI) payments.
- Lower EMI and new tenure: When you switch to a new financial institution that offers a better rate of interest, your monthly EMI amounts go down as well. In the long run, this could be financially relieving on your balances. Additionally, since the terms of the loan have to be renegotiated all over again, you can opt for a shorter or longer tenure period than what you had earlier with your new lender.
- Part prepayment facility: Some borrowers opt for a new lender because of the lack of part prepayment facilities in their existing lender. Part prepayment is a system that allows borrowers to repay a portion of their outstanding loan principal. This can help in saving on interests as well as enable lower EMI payments. Certain institutions don’t offer this facility to their customers or charge a very high part prepayment rate. Hence, borrowers might want to transfer their home loan.
- Top-up loan: A home loan is not the only significant expense that an individual incurs in their lifetime. If the borrower requires additional funds for a wedding, medical emergency or higher studies, the new lender that accepts the home loan balance transfer can also help in negotiating the terms for a top-up loan. This would, however, be treated as a personal loan.
How can you transfer your home loan?
Follow these simple steps to transfer your home loan to a new lender without any hassles.
- Before you decide to switch, find out the best institutions and the best home loan interest rates offered in the market. Ensure that you do thorough research and avoid falling in the trap of short-term gains that could be financially unhealthy.
- Once you finalize on your new lending institution, try negotiating with your existing lender to see if they are willing to renegotiate the terms of your loan to retain you as an existing customer. If not, ask them for a ‘No Objection Certificate’ approving your loan transfer request.
- Approach your new lender with the NOC and other important documents required. Submit all of them and start the procedure with your new lender.
- Your new lender will then pay off your unpaid home loan amount to your old lending entity and will close the account. You can now start afresh with the new terms of your loan with your new lender institution.
With the advent of modern technology, home loan balance transfer has become a hassle-free and quick process. Refinancing is a financially smart option to save money on interest payments, especially when the interest is being paid long-term. However, with the benefits, there are also certain risks attached. Sometimes, borrowers tend to fall into refinancing traps that promise short term gains but prove to be financially harmful in the long run. Therefore, if you’re looking to transfer your home loan, ensure that you conduct thorough market research, understand all aspects of the loan transfer, and undertake the process only after you are entirely convinced.