Home loan balance transfer is a popular practice that allows borrowers to save sumptuously on their existing housing credit. With this facility, they can easily switch to a lender that offers much lower interest rates as well as various additional advantages. Here are some popular ways in which one can benefit from a balance transfer process.
Ways to save money with a home loan balance transfer
Here are some ways in which balance transfer allow borrowers to save money on mortgages:
- Opting for a lender with a low-interest rate: During a balance transfer, borrowers should go for a lender offering a lower interest rate. For this, it becomes necessary that they conduct a thorough comparison of lenders.
- Going for a balance transfer early on: On switching lenders during the early stage of repayment tenor, borrowers will be able to repay the remaining amount at a lower interest rate. This ensures that they can save a lot of money on the monthly instalments.
- Increasing loan tenor to reduce loan EMIs: During balance transfer, lenders offer individuals extension of their credit tenor. Doing so facilitates borrowers to pay lower monthly instalments. This ensures that borrowers pay their EMIs on time without having to face additional financial burdens.
- Opting for lenders with low processing fees: Before going for balance transfer borrowers should check the processing fees that lenders charge. This ensures that they can compare and select the creditor that charges minimal fees for processing balance transfer requests.
- Prepaying a portion of outstanding credit: During credit repayment, borrowers have the flexibility of making part-prepayments. This can notably reduce the overall EMIs, and at the same time, get rid of the credit faster.
There are several costs involved during home loan balance transfer that interested borrowers should be aware of to stay financially prepared.
Costs involved in home loan balance transfer
Following are some of the costs involved in the balance transfer process:
- Interest rates for salaried individuals: 8.50% p.a. onwards
- Interest rates for self-employed individuals: 8.90% p.a. onwards
- Loan processing fees: 7% of the loan amount + applicable GST
- EMI bounce charges: Rs.500 to Rs.10,000 per bounce
- Secure fee: Rs.9999 + GST
- Penal interest: 24% p.a. per month + interest on overdue amount
There are several benefits of home loan balance transfer that borrowers can get if they are ready to bear these costs.
Benefits of home loan balance transfer
Following are some of the benefits that one can get on opting for a balance transfer:
- Lower monthly instalments: With a balance transfer, borrowers can opt for lower interest rates on their home loan. With reduced EMIs, debtors can easily pay their monthly instalments on time.
- Easy repayment of credit: Timely credit repayment gives a boost to the credit score of the borrower. Also, borrowers can part-prepay their credit so that the loan repayment is completed as soon as possible.
- Top-up loan facility available: Balance transfer of a housing loan allows people to top-up their credit amount, in case they need an extra amount. The process is simple and they do not need to submit additional documents.
- Additional benefits present: One can get additional benefits on switching lender. So, borrowers must go for a balance transfer just at the right time during credit tenor.
After going through the cost-benefit analysis, borrowers can proceed with their balance transfer application process.
Home loan balance transfer application process
Individuals can follow the steps below to complete the application process for balance transfer:
Step 1: Compare the interest rates, features and costs involved among lenders.
Step 2: Talk to the chosen lender for negotiating the terms and conditions associated.
Step 3: Collect a NOC from the existing lender containing permission for a balance transfer.
Step 4: Collect all the necessary documents from an existing lender and submit them to the new lender.
Step 5: Pay the necessary charges to the existing lender when transferring the balance amount to a new lender.
Step 6: Once done, repay the remaining amount with the new interest rate to the new lender.
However, there are certain mistakes that borrowers should refrain from committing when applying for a balance transfer.
Mistakes to avoid during home loan balance transfer
Following are some common mistakes that people can make during the balance transfer process:
- Not calculating the total costs of credit: If a borrower does not calculate the total costs of credit during balance transfers, they might end up paying more than the present costs.
- Unable to determine the type of interest: Lenders can offer fixed interest rates or floating interest rates on credits. Hence, it becomes essential for borrowers which one would be profitable for them.
- Not checking the lender’s credentials: If one proceeds with a balance transfer without conducting a thorough background check on the lender, they can land in trouble. So, it becomes necessary to check their reputation before a balance transfer.
- Forgetting to consider the processing fees: All financial institutions charge a separate processing fee during balance transfers. So, borrowers need to calculate it before beginning the process. You can use home loan Balance Transfer calculator for the same.
- Not checking the foreclosure charges: Credit foreclosure charges can notably vary among financial intuitions. Some offer it for free, whereas others charge a significant amount.
- Going for a balance transfer at the wrong time: Many people go for a balance transfer toward the end of their credit tenor. However, it might not prove to be much advantageous in terms of saving money.
Also, borrowers should note that there are certain situations when the balance transfer process does not make any sense.
Situations when balance transfer makes sense
Following are some situations when balance transfer makes sense:
- A borrower can go for a balance transfer if they are at an early stage of their credit tenor.
- Balance transfer can be advantageous if there is still substantial money left to repay.
- Borrowers can consider transferring their housing loan if the new creditor offers a lower interest rate.
- One can go for a balance transfer to a new lender if they offer more benefits than the new lender.
Several lending institutions extend pre-approved loan offers to select existing customers. These offers speed up the credit approval process and are available on products like home loans and LAP. Customers can check their pre-approved offers by entering a few basic details.
Home loan balance transfer happens to be a wise decision and can benefit the borrower immensely if done at the right time. Borrowers can not only reduce the overall costs of their mortgage loan but also receive additional benefits by opting for this process. However, they should only go for top lenders to avoid being a victim of fraud.