When receiving an attractive offer on a home loan from another lender, one may think about transferring the balance. However, since it does not always work in the borrower’s favor, it is important to carefully comprehend the advantages of a home loan balance transfer.
Today at Fintitude, we’ve thoroughly examined the advantages of a home loan balance transfer in this blog post. So let’s jump right into the post without wasting any more time!
Understanding Balance Transfer for Home Loans
Before discussing its many benefits, let’s first have a basic understanding of what a home loan balance transfer is.
A home loan balance transfer is a viable option for investors to switch from one lending institution to another that offers a lower interest rate.
The new lending institution authorizes the acquisition of your home loan. It gives the current lending institution its due payment.
The dominant lending institution releases the property documents once the remaining sum is obtained. It provides the borrower with a no-due certificate. The new financier is then provided with these documents.
After completing this procedure, you must pay the new lending institution all outstanding Home Loan EMIs by their interest rate standards.
In this alternative, you close the old Home Loan account and open a new one with a unique lending institution that offers better benefits like better terms and lower interest rates.
Highlights of the advantages of home loan balance transfers
Before reading on, let’s take a quick look at the main advantages of a home loan balance transfer:
- Your monthly EMI can be reduced by transferring your home loan balance from one lending institution to another.
- When you choose a home loan balance transfer, the interest rate on your home loan is reduced, allowing you to save a ton of money.
- Transferring your home loan could improve your credit score.
- You can bargain with your new lending institution when choosing a home loan balance transfer and may choose it accordingly.
- You can choose a home loan balance transfer if dissatisfied with the current lending institution’s services; it’s not just about the interest rate.
- When transferring your home loan balance to a new lender, you can shorten or lengthen the loan’s term.
Benefits of Transferring Your Home Loan Balance: A home loan balance transfer is a financially viable option due to the lengthy home loan term. Let’s say you come across a lending company willing to give you a loan at a very low-interest rate. In that case, you can significantly lessen the burden of your home loan.
However, you must always conduct a value and benefit analysis before choosing any balance transfer offer.
Let’s look at some examples of analysis:
The transfer’s interior rate of return (IRR) can also be computed.
However, suppose the amount owing is too small. In that case, it is not advised to choose a home loan balance transfer because there is a chance that you may end up paying a similar or even higher amount than you would have with your current lender.
Meanwhile, imagine you are in the early stages of your home loan, where your loan’s due amount is high, and the new lending institution offers you a much better deal. If so, you should unquestionably choose the new deal.
Such agreements may offer you a relatively lower interest rate.
This will lower the burden of your mortgage and result in significant cost savings for you.
Example: The Advantages of a Home Loan Balance Transfer
It is well-known and accepted that an example is the best way to understand even the most common thing in this universe. In light of this, we’ll use examples to help you understand the advantages of a home loan balance transfer. Now let’s dive in!
Example – 1
Vikas took out a home loan at 10%, and he has 15 years to pay it back. The principal balance due is Rs. 20 lakhs. If he chooses to change the loan to 9%, he will be prepared to save Rs. 14,484 in a year and Rs. 2,17,260 in 15 years if he does so.
Example – 2
Siddharth, meanwhile, has a home loan at 10% with 15 years left to pay it off and Rs. 25 lakhs in principal still owing. He would be prepared to save Rs. 18,336 and Rs. 2,75,040 if he chose to change the loan to 9% in a year.
So, if we compare the two, it makes sense that Siddharth would benefit more from a Home Loan Balance Transfer because he has a greater debt load. He can therefore save more money by making the switch.
The Morals from the Instances
From the examples above, you must follow these rules:
The Home Loan Balance Transfer process takes a lot of time and money. As a result, you should proceed with these decisions with great caution.
It is important to properly research the Home Loan Transfer procedure.
Let’s say you have the resources to plan effectively. In that case, using the home loan balance transfer option can help you save money.
Home loan balance transfers are an effective way to reduce your EMI burden.
When the entire unpaid principal loan amount is transferred from one lending institution to another at a lower interest rate, it is known as a balance transfer of a home loan.
However, there are a few things to keep in mind as you decide whether to transfer your home loan balance, namely:
- The full amount owed on a loan
- Offered interest rate
- Time left until the loan is repaid
Additionally, it would help if you decided to transfer your balance after conducting a thorough analysis.
It would help if you investigated all of your options on the market, including any lending institutions providing you with a home loan balance transfer.
It would be beneficial if you chose the best offer available. The same can be useful as a cost- and time-saving alternative.
Once the interest rate is reduced, it automatically makes it easier to reduce the required monthly payments.
In this manner, your financial budget is easier to maintain, and the loan repayment is made simpler without affecting your monthly spending plan.
Suppose you are in a position to manage and carry out the proper financial planning. In that case, you can even pay back the loan with the help of a home loan balance transfer in a relatively shorter amount of time. The terms and conditions should also be carefully read.
After looking into the respectable alternate deals on the market, you must eventually investigate the Home Loan Balance Transfer option. If you make wise decisions, you will be able to obtain fruit that is beneficial to you and enjoy the sweeter flavor of those fruits over time.
The Final Conclusion
To sum up, only your loan and economic situations can determine whether a home loan balance transfer is beneficial. Additionally, many banks have cut the interest rates on home loans by 10 points since the RBI restricted the risk weight. You must, however, be completely familiar with the same tool and its terms and conditions.
Finally, before you transfer, double-check all the points made in this blog. Additionally, click here to get the best deal immediately if you’re looking for a new home loan.