What To Consider Before A Home Loan Balance Transfer?

If you have a home loan running, you must be getting tempted to switch when home loan interest rates fall down. Experts advise that existing borrowers with home loans at considerably higher interest rates may consider shifting their existing loans to other lenders providing lower Home loan balance transfer interest rates and/or better terms of service. Let’s understand more about doing the home loan balance transfer.

What are the primary benefits of doing a home loan balance transfer?

Some of the benefits of switching from your existing lender to another one are:

• If you apply for an HDFC home loan balance transferat any point throughout your loan cycle, you can take advantage of current low rates.

• By lowering your interest rate, a HDFC home loan balance transferlowers your monthly EMI.

• Before deciding to do HDFC home loan balance transfer, you may be able to negotiate the terms and conditions with your existing lender and mutually reach an agreement that is acceptable to both of you.

• It will allow you to choose a lender that provides superior services to its consumers than your current lender.

If you are considering the home loan balance transfer, consider the following factors:

Renegotiating interest rates with existing lenders: As an HDFC home loan balance transfer is treated by the new lender as a new loan application, the borrower must go through the stages and processes connected with a new application, such as loan evaluation, property evaluation, and so on. Because all of these actions can take a significant amount of time and work for borrowers, they should first try to renegotiate the interest rate with their current lender before switching. One should only consider transferring if their current lender refuses to match the Home loan balance transfer interest rates offered by alternative lenders on their outstanding house loan.

Calculate overall interest cost savings: The key rationale for choosing a home loan balance transfer is to minimize the overall interest cost of the loan, particularly if it was obtained at a significantly higher interest rate. It is suggested that you shouldn’t just look at the Home loan balance transfer interest rates but other fees as well. One must remember that home loan balance transfer requests are treated as fresh home loan applications by lenders and due to this, the lender will levy processing fees, administrative charges, and other charges associated with new applications. Those considering a home loan balance transfer should assess their overall savings in interest costs after accounting for the fees that will be charged while transferring the home loan. Choose the balance transfer option only if the overall savings in interest costs are significant enough after deducting the costs involved.

Calculate how much time is left for the tenure to end: Choosing an HDFC home loan balance transfer in the later stages of the loan tenure would be ineffective. Home loan customers already have paid the majority of their interest component early in the loan term, leaving limited room for interest cost savings through loan transfers later in the term. If the considerable time period is still left, borrowers should also try to keep the repayment tenure of their new home loan post-balance transfer the same as the remaining tenure of their existing home loan.

Repo Loan: A Repo Rate-tied Lending Rate (RLLR) Loan is tied to the repo rate of the Reserve Bank of India. If the RBI lowers the repo rate, banks that offer the RLLR-based loan will also drop the interest rate. In this instance, the bank’s home loan interest rate will fluctuate in response to changes in the repo rate. These loans ensure borrowers’ transparency because they profit whenever the RBI lowers down the interest rate. Reduced repo rates will benefit homebuyers by lowering the interest rate on their loan. As a result, your EMI burden will be reduced. To provide some relief to people, the RBI recently reduced the repo rate, which means your EMI will decrease without the need to switch lenders.

Understand Your Credit Score: Your credit score will tell you whether or not you are qualified for a home loan transfer or not. Your credit rating will suffer if you have been irregular in repaying credit, and EMI on time. A low credit score means you’re less qualified for a home loan balance transfer because the new lender will analyze your credit score along with other reasons.

Steps for home loan Balance transfer

Here we have briefly talked about the process of a home loan balance transfer:

Close the transaction with your current bank: Before you begin the Balance Transfer process, you must first obtain clearance from the prevailing lender by writing a letter to your current lender seeking a home loan transfer. Once confirmed, you will receive a No Objection Certificate (NOC) along with the loan statement, which will include the outstanding amount.

Provide the following NOC to the new lender: Give the NOC (No Objection Certificate) to your new lender and get approval on the loan amount.

Documents must be transferred: Your property documentation will be turned over to the new lender after the transaction is completed. The remaining post-dated checks stand cancelled. Also, be certain that no documents are missing from the transfer.

Points to be noted: 

Sometimes when you are consistently paying your home loan EMIs and have a better credit profile, your existing lender can offer you a better interest rate. You can take this offer to other lenders and negotiate with them for better interest rates.

Existing borrowers considering a home loan balance transfer should look into a home loan overdraft option if it is offered by the new lender. An overdraft account in the form of a saving or current account is formed and linked with the new home loan account under this option. Borrowers can deposit excess funds in an overdraft account and withdraw them as needed. The balance in the overdraft account is then deducted from the outstanding loan amount to calculate the loan’s interest. This helps to reduce the Home loan balance transfer interest rates.