Transferring your Home Loan balance isn’t very tough. However, there are a few things you need to keep in mind before you go through with it. Read on to know more!
A Home Loan balance transfer (also known as refinancing or balance transfer) is an option that most individuals opt for to take advantage of lower interest rates in the market. Usually, if you are an existing borrower who is about two or more years into your loan tenure, you won’t get the benefit of reducing interest rates in the market if you’ve opted for a fixed interest rate.
However, you could have a discussion with your bank and re-negotiate your interest rate. Citing a good repayment track record, among other things, could help. If the bank isn’t amenable, you could then shift to another bank or financial institution which offers a lower interest rate for Home Loans.
The Transfer Process
First of all, you will need to submit a letter to your existing lender requesting a transfer. Based on your request, the lender will provide a consent letter or No Objection Certificate (NOC) along with a statement mentioning the outstanding loan amount.
You need to submit these documents to the new lender, who will then transfer funds to the old lender for an account closure. Once this transaction is done, your property documents will be handed over to the new lender. The remaining post-dated cheques that you might have given to your old lender, will be cancelled.
A Home Loan All Over Again
Remember, if you opt for a Home Loan balance transfer, you need go through all the procedures involved with applying for a Home Loan once again. These include a credit appraisal, legal verification of property documents and a technical evaluation with the new bank. The loan will be approved only when the bank is satisfied with these verifications.
The lender that you are shifting to usually offers you a loan based on the current Home Loan rates that their customers enjoy. You can, of course, negotiate and check if they will give you a lower rate.
Take Charges Into Account
Some banks charge a prepayment penalty for a balance transfer. This can vary anywhere between 2% – 5% of the principal outstanding amount of the loan and depends on your lender. However, in recent times, many institutions and some banks seem to be waiving this for their customers.
Check with your bank and try to negotiate a waiver if charges are applicable. Also, note that you might have to pay a processing fee to the new lender. This can range anywhere between 0.5% – 1% of the loan amount, even though most banks restrict this amount to Rs. 5,000. You could ask your new lender to waive this.
Take these charges into account when you are comparing lenders before initiating your balance transfer. If you feel there is a significant amount of interest to be saved from the move, then you can make a profitable switch.
Apart from saving on interest, there are a few other reasons why you could consider switching to another Home Loan. These include:
Your bank isn’t open to re-negotiation: You might want to re-negotiate certain terms and conditions with your bank, but your bank just won’t budge. For example, you might wish to extend the tenure of your loan to lower your EMI. In case your bank does not agree, it would makes sense to switch lenders.
No top-up: The costs connected to the property that you purchased might have gone up significantly. Considering this, you might want a top-up loan to renovate your home or meet any other needs. If your lender is not open to providing such a loan, you could consider switching to another lender.
Service issues: You might just be unhappy with your bank’s services and accessibility. This is a good enough reason to switch.
Things You Should Consider
- It is always better to switch early on during the loan tenure. This is because interest will still be a major component of your EMI and switching would be mean you save more.
- Get an acknowledgement from your current lender for the property documents that need to be sent across. More often than not, the documents aren’t sent on time to the new lender without a bit of a push from the borrower.
- Remember that a loan switch will not be possible if you have been irregular with your loan repayments.
Use our Home Loan EMI Calculator to check how much you will save on interest when you switch. And, don’t forget to make a comparison across lenders for the best rates.
Some of the current rates offered by top Home Loan lenders are as follows. Check if your Home Loan rate is in line. If not, just switch!
|Bank||Floating Rate Of Interest|
|SBI||8.30% – 8.70%|
|ICICI Bank||8.35% – 8.85%|
|HDFC||8.35% – 8.85%|
|Kotak Mahindra Bank||8.35%|