Home Loan Balance Transfer: When should you opt for it?

Home Loan Balance Transfers are beneficial in these situations for existing borrowers.

Existing homeowners can use the Home Loan Balance Transfer option to transfer their outstanding home loans to different banks or housing finance companies (HFCs). Following this arrangement, the new lender grants the borrower a new home loan while also paying off the existing lender for the outstanding principal balance of the borrower’s ongoing home loan. The borrower must pay back the loan according to the new interest rate, loan term, processing fees, additional costs, etc., as determined by the new lender.

Home Loan in Delhi NCR
Home Loan in Delhi NCR

Other lenders are willing to offer them home loans at lower interest rates.

Based on the credit histories of individual borrowers, the interest rates on home loans offered by banks and HFCs vary greatly. When deciding on interest rates for home loan borrowers, lenders also consider their own cost of funds and other financial and market-based factors. Depending on the interest rate regimes applied to each borrower’s home loans, the way policy rate changes are transmitted to current borrowers of home loans can also change. So, other lenders offer home loans at significantly lower interest rates. In that case, borrowers of home loans should choose a balance transfer.

Existing borrowers can qualify for lower interest rates if their credit profile is improved.

When setting the interest rate for borrowers of home loans, lenders add the spread and credit risk premium (CRP) to their underlying benchmark rate. The spread and CRP components are typically based on the borrower’s overall credit profile. The spread or CRP is typically lower for home loan borrowers with better credit profiles and vice versa.

Current lenders do not authorize or impose higher interest rates for top-ups on active home loans.

When a borrower has repaid a predetermined number of EMIs and has a positive repayment history, banks and HFCs will offer top-up home loans to those who currently have home loans. Unlike speculation, home loan borrowers may use the top-up facility for any purpose. Compared to other options like personal loans, loans against securities, etc., lenders typically charge top-up loans with lower interest rates. Home loan borrowers who choose the balance transfer option often have access to top-up home loans.

Therefore, current home loan borrowers can choose a Home Loan Balance Transfer and simultaneously apply for a top-up loan from a new lender if they cannot use the top-up facility on their home loan from one lender or if they are paying higher interest rates.

While exercising the Home Loan Balance Transfer option, consider the following points:

*Balance transfer saves much money on interest costs overall

When an existing home loan borrower asks for a balance transfer, new lenders see it as a new application for a home loan. So, people who already have a home loan and want to switch to a different lender may have to pay processing fees, administrative fees, and other costs that come with a new home loan application.

*Balance transfer helps people save more money in the beginning.

EMIs for a home loan are made up of principal and interest. During the first few years of a home loan, interest makes up a more significant part of the monthly payment. As the loan term goes on, more of the principal amount is included in the EMI. So, using the balance transfer option early on in the life of a home loan saves the borrower more money on interest costs.

* Make sure that the length of the new loan is the same as the remaining loan term.

Those who already have a home loan and want to use the balance transfer option should ensure that the loan term of the new home loan and the remaining loan term of the old home loan are the same. If borrowers choose longer home loan terms, their total interest costs will go up. It goes against the main reason for transferring home loans: to lower total interest costs. So, people who already have a home loan should only choose a longer loan term if they want to lower their EMI payments.

How to Apply for a Home Loan Balance Transfer?

Here are the steps you need to take to apply for a Home Loan Balance Transfer:

Step 1: Provide your personal, financial, and employment details.

Step 2: Enter your required loan amount and details of the existing property.

Step 3: You will finally get to know the loan eligibility amount.

Step 4: Submit your property loan document.

Step 5: Pay the secure fee online.

Home Loan Balance Transfer Features and Benefits

Low-Interest Rates: The most obvious and immediate benefit of transferring your home loan balance is that you will have to pay a lower interest rate, which will lower your monthly home loan EMI.

Flexible Repayment Term: You can pay back your loan over as long as 360 months.

Loan Top-Up Facility: If you are eligible, you can use the top-up facility and the balance transfer option. There is no need for extra paperwork.

What’s the difference between a home loan and a Home Loan Balance Transfer?

A home loan can buy a new house, apartment, or land. You can also get a home loan to build a new house on your own land. Most home loans are secured loans, and it takes much paperwork to get a new home loan.

When you do a Home Loan Balance Transfer, you move your current home loan from your current lender to a new lender. Borrowers usually think about a Home Loan Balance Transfer when they can get a better interest rate from another lender and save money. Once the transfer is done, you will owe the rest of the loan to your new lender. Since your current lender has already approved your loan application, a Home Loan Balance Transfer requires much less paperwork.

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