How to make a home loan balance transfer work for you

By identifying a lender with a competitive interest rate, you can transfer your existing Home Loan for greater savings. You can even enjoy a shorter tenure and a positive impact on your credit score. 

“Should I have opted for a different lender for my Home Loan? Does it make sense to transfer the balance of my loan to another lender? Can I take advantage of better interest rates prevalent today?”

These are just some of the questions that are faced by every home owner at least once in their repayment journey. There are a number of benefits you are likely to gain when you choose for a balance transfer. But before we come to that, let us first understand what exactly is a Home Loan balance transfer.

Home Loan Balance Transfer

The transfer of your existing Home Loan account from your lender to another bank or non-banking financial company (NBFC) is called the Home Loan Balance Transfer. 

People usually choose to go for this process if they find another lender offering a lower interest rate or better service. But you should remember to carefully consider all the costs involved and the prospective savings before availing a balance transfer.

The savings associated with a lower rate of interest is the primary reason to choose a transfer to another lender. After all, a Rupee saved is a Rupee earned.  

10 Steps that Make up the Home Loan Balance Transfer Process

Currently, there are no prepayment penalties for the foreclosure of floating rate loans. But fixed-rate borrowers have to pay a penalty on the prepayment of Home Loans. 

Things to Consider Before a Home Loan Transfer

It is very important that you study the process before you look at transferring your Home Loan. Keep these things in mind:

See the actual rate that you are getting. Find out if the lender’s rates depend on the base rate or on the marginal cost of funds-based lending rate (MCLR). It will be lower in the case of the latter.

Check out the alternative to transferring your loan. You could try negotiating with your existing lender to reduce the rates. Do you still have a good 10 years remaining on your loan tenure? If you have been regular with your payments, your lender may consider your request. It might grant an interest rate reduction. It is worth exploring this option before you rush to a new lending institution. 

Is the new lender trying to make you agree to a longer loan tenure? This is a bad idea even if the rate is low. You will end up paying more interest over a longer tenure. So, take advantage of the reduced rate. Reduce your repayment period and repay the loan faster. 

Estimate the costs associated with the transfer. There will be a processing fee, a stamp duty, and legal charges. Lenders also have technical charges, and verification and valuation charges. How much does it all add up to? Does it compare favourably with the benefits you get from the reduced rate? There may not be any prepayment penalties. But your existing lender may still penalise you for shifting your loan elsewhere.

See how much of your loan tenure is remaining. Do you have only about five years of the loan tenure remaining? Have you repaid a major portion of the capital? Then your collateral (your house) is now worth more than the loan you are negotiating for. Take advantage of this. Ask for a lower interest rate. It is within your rights to do so. 

The Bottom Line

Take a long careful look at all the benefits you are likely to get before deciding on the transfer of your Home Loan. Also, study all the charges associated with the process.

NBFCs such as Bajaj Finserv offer a number of benefits including customised insurance solutions as well as EMI Holiday feature – allowing you to plan your finances better. You can visit the lender’s website and initiate the process at your own convenience. You can use a Home Loan Balance Transfer Calculator to  assess your actual savings when you transfer to the new lender.