Maximise Your Savings on loan with a Home Loan Balance Transfer.
A home loan balance transfer allows a borrower to transfer his/her existing home loan to another lender at an affordable rate. It is an easier way for a borrower who feels that the interest he is paying for his loan is high, or the tenure in which he is paying it is long, or the EMI is too high to opt for this option. In this blog, we will take you through what a home loan balance transfer is, the advantages, the process and some important considerations when opting for a home loan balance transfer.
What is a Home Loan Transfer?
Home loan balance transfer is the process of transferring the home loan balance amount from where you currently take to where it ensures that you eventually get best interest rates.
Advantages of a Home Loan Transfer
The primary reasons why borrowers opt for a home loan balance transfer are:
1. Lower Interest Rates
Low interest rates are one of the most compelling reasons for you to take advantage of another lender and find a balance transfer rate. Saving isn’t that drastic but a reduction as small as 0.5 – 1 % can translate to a good saving over a loan’s tenure.
Example
If you can reduce your loan by minimizing the interest rate to 7.5%. You will save several lakhs in total interest paid on a loan amount of ₹50 lakh with an interest rate of 8.5% over 20 years.
2. Reduced EMI
A home loan balance transfer results in a lower interest rate which will also cause you to have lower monthly EMI. This in turn will decrease your monthly financial burden. This way, it’s easier to manage other expenses and improve cash flow.
3. Shorter Loan Tenure
Reduced interest rate improves the cash flow situation for some borrowers, who use it to reduce loan tenures, keeping EMI almost the same. This means the loan is paid off faster and you’ll pay less total interest.
4. Additional Features and Better Terms
Lenders may offer enhanced features such as:
Top-Up Loans: It save you the trouble of digging into your pocket for renovating your house paying for education and other costs.
Flexible Repayment Options: New lenders might get offers like step-up EMI or partial prepayment without penalty.
Customer Service: Switching to a lender known for offering better service can improve your experience.
When should you think of a home loan balance transfer?
1. Significantly High Interest Rate Difference
If you found that you are currently paying above the rate offered by another lender, it’s worth considering the transfer. Reducing even a bit can impact your mortgage over a long loan term.
2. During early tenure of the loan
A home loan has a higher interest part in EMIs in the beginning years of the loan. In this period, it is optimal to transfer the balance. At the end of tenure, the principal repayment gains importance in comparison to EMIs and the impact of a balance transfer reduces.
3. Improved Credit Profile
If your credit score has become much better since you took the loan, you may now be able to qualify for better rates and terms. Now is a great time to make a transfer to another lender.
A Note on Plot Loans
With a plot loan, you’ll still be able to benefit from a balance transfer. The rest is the same as with regular home loans. But remember that plot loans sometimes come with slightly different conditions to loans on fully constructed properties.
Conclusion
A home loan balance transfer can be a great financial move to save on interest, bring down EMIs, or even improve the loan terms at large. However, the time and costs of such must be evaluated carefully to ensure your fund release process coincides with your financial goals. If you are opting for a home loan or plot loan, be sure to understand the small details of the balance transfer process.
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