All you need to know about Home Loan Balance Transfer

If you were to ask your peer group about that one thing that tops their wish list, the most likely answer will be a house. A house is not only a financial decision; it is also an emotional one. It gives you a sense of pride and accomplishment, matched only by a few milestones. It is your sanctuary where you get to be one with your family and you most inner thoughts. Increasing disposable incomes, the desire to have your private space, and avoiding the hassles of rented accommodation- are some of the reasons to invest in a home. Owning a house is not easy with rising real-estate prices and diminishing land area. Rather than spending a huge lump sum of money, it is easier and economical to avail of a home loan. But now, no longer do you have to stick to your existing lender and repay the loan on its terms. New-age lenders are offering innovative schemes to help you convert your dream into reality. All you have to do is complete a simple process to transfer the balance loan amount to another lender with better rates and terms.

Before you decide on transferring the balance to another lender, you should have a clear understanding of the various aspects involved. Most borrowers consider just the interest rate before making the switch. However, things like the tenure left on the original loan, the cost involved in balance transfer, and the outstanding loan amount impact the decision of the loan balance transfer.

What is Home Loan Balance Transfer?

A balance loan transfer simply means you transfer an existing loan from one lender to another. In the case of a Home Loan Balance Transfer, the process involves migrating the outstanding Home Loan balance to a new lender at relatively lower interest and/or better loan terms.

A home loan balance transfer is also known as refinancing. This process has become more lucrative and convenient after the Reserve Bank of India removed foreclosure penalties. According to RBI guidelines, lending institutions cannot levy a penalty for foreclosure or prepaying home loans. Earlier, borrowers avoided prepaying a loan because of higher prepayment charges.

Why Should you Opt for a Home Loan Balance Transfer?

The loan industry is constantly coming up with newer facilities, schemes, and offers to lure customers. Transferring your home loan makes sense when you aren’t satisfied with the existing features anymore. Or, you could have found another lender that’s offering a better interest rate, loan terms, or customer service. Another option available to you is renegotiating with your existing lender to match the deal offered by the new lender. Chances are that your existing lender might agree to the deal as it wouldn’t like to lose out on a good customer.

When Should you Opt for a Home Loan Balance Transfer?

Although transferring your home loan to a new lender may seem like a better deal, there are a few things to analyze before making that decision. A home loan balance transfer makes the most sense when:

• A Considerable Tenure is left: If you are still in the early years of the home loan, the transfer will be a good option. But if the tenure left on the existing loan is not much, the cost-benefit analysis doesn’t favour the same as there will be a cost involved in the transfer.

• Home Loan Balance Amount is Substantial: If you have already repaid 70-80 % of your loan outstanding balance, the processing fee and other charges incurred in the transfer wouldn’t justify the switch.

• The Benefits Outweigh the cost: Most borrowers consider only the interest rate when mulling over a transfer. However, there are other costs involved like processing fees, etc. Also, there’s a considerably long process of shifting the property papers to the new lender, renewed documentation and credit analysis, etc. Not all costs are monetary; there is time, effort and hassle involved.

Benefits of a Home Loan Transfer

It would be unwise to let go of a good deal when you are offered one. A well-researched and scrutinized loan balance transfer can get you ample benefits.

• Lower Interest Rate: It is the most important factor considered by borrowers. In the initial years, a transfer for even a 50 basis point lower interest rate can considerably reduce the overall cost of the loan.

• Smaller EMIs: Lower interest rate means smaller EMIs and lesser financial pressure each month.

• Better Loan Terms: A home loan has a long tenure and your preferences can change during that duration. You could consider a home loan transfer if say, you want to switch from fixed to floating interest rates to avoid foreclosure charges and your existing lender doesn’t offer that. A new lender could be more aligned with your choices.

• Alteration of Loan Tenure: Servicing EMIs means considering your income, other financial obligations, etc. But over time, with an increase or decrease in your financial capacity, you could negotiate for longer or shorter loan tenure with the lender. This, in turn, dictates whether you shall pay lower or higher EMIs.

• Part Pre-payment facility: If you have surplus funds, you could pay a portion of the outstanding loan principal amount. This facility can help reduce your financial burden by lowering your EMI or loan tenure as well as saving on interest.

• Loan top-up: In case you need more funds to finance a new home or renovate the existing property, a top-up loan option could be also beneficial. Most lenders offer a top-up loan facility at attractive interest rates over and above your existing loan.

• Better Customer Service: Not all home loan transfers mean only monetary benefits. The way your lender deals with you and your service requests could also be a deciding factor.

Process for a Home Loan Transfer

Here are the steps that need to be followed for the process of a loan balance transfer.

Step 1: Submit a request letter to your existing lender to initiate the process of home loan balance transfer.

Step 2: You have to obtain a letter of consent, No-Objection Certificate (NOC), foreclosure letter, list of property documents (LOD), and a loan statement depicting your repayment transactions.

Step 3: You now have to apply to the new lender along with the requisite documents needed for the new loan. The new documentation typically includes

• Your KYC
• Ownership proof of the property
• NOC from your builder/society
• Documents procured from the previous lender
• Proof of Income including salary slips, if applicable
• Income Tax Returns
• Bank Statements

Step 4: The new lender evaluates your eligibility, analyzes your credit history, and verifies all the submitted documents.

Step 5: If everything is found in order, the home loan transfer request is granted.

Step 6: The new lender hands over a cheque for the principal balance amount to the previous lender.

Step 7: Post-dated cheques submitted to the previous lender are cancelled.

Step 8: Upon completion of all the above steps, the home loan balance is deemed transferred.

Conclusion

Transfer of a home loan is a win-win situation for both the borrower and the new lender. The borrower gets to enjoy a better interest rate, loan terms, and/or facilities and the lender gets to acquire a credit-worthy customer for the long term.