Design Credits: Sheetal Patil
Taking a Home Loan is probably one of the biggest financial decisions you will ever make. A Home Loan means that a significant portion of your income is allocated towards paying the loan.
The most important factor that many borrowers consider when opting for a Home Loan is the interest rate that the bank offers.
It is a good idea to look for ways by which you can reduce the interest rate, if you have been regular in paying the loan EMIs over a certain number of years. A popular way to do this is to opt for a balance transfer of your Home Loan. Let us tell you everything about it.
How Does A Home Loan Balance Transfer Work?
The process by which the unpaid principal amount of the loan is transferred to a different lending bank for a lower rate of interest is called balance transfer.
How Can You Decide If Home Loan Balance Transfer Will Benefit You?
A Home Loan balance transfer primarily depends on the following factors:
- The difference in the interest rates.
- The loan amount that is yet to be paid.
- How many years remain in the loan tenure.
In case the unpaid amount of the loan is low or if the remaining loan term is not too long, then a balance transfer may not be the best choice.
Remember to also check if your lending bank charges a processing fee for balance transfer of your Home Loan.
When Will A Balance Transfer Be Beneficial?
A balance transfer will be most beneficial if you are in the early phase of your Home Loan, rather than later in the loan tenure.
Additional Reading: What to Consider Before Choosing Home Loan Balance Transfer
The Process of Balance Transfer
Although it is not difficult, a balance transfer of your Home Loan is a rather lengthy process. Here’s what happens after you submit your request for a balance transfer to your bank.
Are You Credit Worthy?
The bank to which you want to transfer your Home Loan will perform a credit check to review your credit history. In case the bank finds that you are not credit worthy, your request for the balance transfer could be refused.
Have You Got Those Property Documents?
You will also need to reclaim the documents pertaining to your property from the bank where your Home Loan was first sanctioned.
Is There A Simpler Process?
Why, yes! There is a simpler process if you find doing balance transfer too tedious. Read on.
Resetting Your Interest Rate
You can also reset your Home Loan with your existing bank.
Since banks will not want to lose a borrower, they will most likely agree to reset your loan. All you need to do is request a reset through a letter to your bank.
Reset? What’s That?
When your interest rate is reset, this sometimes lowers your loan tenure. This is usually a reduction of 1 year. This means your EMI will remain the same, but the total interest you will need to pay will be less.
Interest Rate Lowered. EMI Also Reduced. What Now?
If the interest rate on your Home Loan is reduced and your EMI is also lowered, you will need to provide new ECS instructions and cancelled cheques to the bank.
What If You Have A Fixed Interest Rate On Your Home Loan?
If a borrower who has a fixed rate of interest on the Home Loan wants to lower the interest rate, they would need to first shift to a floating rate of interest. This could involve charges of up to 2% of the unpaid amount.
Additional Reading: Dos and Don’ts of Home Loan Prepayment
That’s everything you need to know about a Home Loan balance transfer. You’re welcome!