Home Loan Balance Transfer Or Refinancing: Which Is Better?

By BankBazaar | August 21, 2017

Finally landed the house of your dreams? Congratulations! But, is that Home Loan you’ve taken out bothering you? Worry not! We have the perfect solution for you to take care of those high EMIs. If you’re looking for options like refinancing or balance transfer, it doesn’t necessarily mean you’re in a financial crisis. There could be other reasons too. Here are a few:

  • Better rate of interest: Did you take that Home Loan in a hurry? Didn’t research well enough before applying? Relax! You can still opt for a better loan. If you’re getting a better rate of interest elsewhere, you must consider making a switch. By better, we mean a much lower interest rate as compared to the current one.
  • To extend the loan tenure: If paying a good chunk of your salary every month is making you lose control over your finances, it’s time to look for an alternative. You could opt for a balance transfer or you could even look at refinancing your loan. Extending your loan tenure can significantly reduce the burden of EMIs.
  • To reduce risk: In case you opted for a variable rate of interest earlier, now is the time to change that. You could choose a fixed rate of interest and stop worrying about changing market trends affecting your loan.

Any of these reasons good enough for you to consider a balance transfer or refinancing option? Before deciding which one to go with, let’s analyse them both.

Additional Reading: Debunking The Top 6 Home Loan Myths

What is refinancing?

The process of getting rid of your current Home Loan by agreeing to repay under different terms is called Home Loan refinancing. If you can’t or don’t want to continue paying the same loan, you can opt for refinancing. However, you still have to repay the loan, but under different terms (better rate of interest, extended loan tenure etc.).

Is refinancing your Home Loan a good idea?

Now that you have a clearer picture of Home Loan refinancing, you need to know whether it’s a good option for you to consider or not. Here are 3 major factors that could affect your decision:

  • The rate of interest: To decide whether refinancing makes sense for you or not, you need to compare the rate of interest on your current loan and the new one. Unless you see a significant difference between the two, there’s no point making a switch. If you’re getting a drop of at least 0.75% – 1%, you should definitely consider the refinancing option. If not, don’t opt for it.
  • The loan amount: The principal amount borrowed is one of the major factors that affect your case. When you opt for refinancing, only the outstanding principal gets transferred to the new loan. You must go back and check how much interest you have already paid. That will help you decide whether refinancing makes sense for you or not.
  • The loan tenure: A longer loan tenure means lesser EMIs and vice versa. Although opting for a longer tenure sounds like a comfortable plan, you also need to keep the interest rate in mind.

The longer the tenure, the more interest you will have to pay. There could be a possibility that you opted for a longer Home Loan tenure initially. However, by refinancing your loan, you can opt for a shorter tenure or the one that suits you better.

Depending on the above-mentioned factors, you can analyse your situation and decide whether you should opt for refinancing or not.

Additional Reading: When Is Home Loan Refinancing A Good Idea?

What is Home Loan balance transfer?

Somewhat similar to refinancing, a Home Loan balance transfer basically implies that you choose to transfer the entire principal amount to another bank at a lower interest rate. The reason for opting for a balance transfer could be similar to opting for refinancing.

The good news is that most banks let you avail this facility, so you no longer need to stress over a high-interest rate. All you need to do is look for the best loan transfer option and avail it.

Additional Reading: Understand Home Loan Balance Transfer

When is it a good time to opt for Home Loan balance transfer?

Although it sounds like a great option to relieve yourself from that high Home Loan interest rate, is it the right choice for you? Here are a couple of pointers to help you decide:

  • Do the math: To find out whether a Home Loan balance transfer works for you, you need to do some minor calculations. If the difference between the initial Home Loan and the new one is high, you must seriously consider a balance transfer.

However, if you’re almost done repaying the initial loan and only a small amount remains unpaid, a balance transfer may not be in your best interest since you’ll just end up spending unnecessarily on processing charges, etc. 

  • Timing is the key: You must’ve heard people saying ‘time is money’. Well, they aren’t wrong. This concept applies to Home Loans as well. If you’re in the early phases of your Home Loan tenure, opting for a balance transfer can prove to be very beneficial. Why? Because you still haven’t paid the interest.

On the other hand, if you wait till the end and start thinking about getting a Home Loan balance transfer, it won’t make much sense. In the latter case, you’ve already paid a major chunk of the interest amount. So, the whole point of opting for a balance transfer won’t make much sense.

Additional Reading: Home Loan Balance Transfer – Things To Consider

Now that you have a better idea about Home Loan refinancing and balance transfer, and when to opt for them, making the right decision should be quite easy for you. All you need to do is analyse all the factors involved and figure out which option makes more sense for you.

If you’re still confused, we suggest you consult a financial expert. Sometimes, it’s better to leave it up to the experts. This is one of the most crucial decisions of your life and we’re sure you wouldn’t want to make any mistakes you might regret later.

Additional Reading: Now Choose Your Financial Advisor Without Any Hassles

Still looking for the right Home Loan to finance the house of your dreams? Look no further! We’ve got the perfect deals for you.

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Category: Money Management

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