The housing loan sector witnessed a year-on-year growth of 9.6% in portfolio outstanding. The lower interest rates are one of the primary drivers for this home loan market boom. Existing borrowers can further enjoy savings on interest by opting for a home loan balance transfer.
Interested borrowers can transfer their existing loan to another lending institution offering lower interest rates and better terms and conditions of repayments.
Here’s a comprehensive guide on a home loan balance transfer to streamline the entire process for an applicant.
When to opt for a home loan balance transfer?
Consider the following situations to opt for a home loan balance transfer to make it cost-effective:
- A higher outstanding home loan amount
If the sizeable proportion of an individual’s loan amount is due and he/she gets an affordable interest rate from another lender, it is wise to opt for a loan balance transfer. On the other hand, if a larger portion of the home loan is unpaid, it is ideal to stay with the existing lender.
- Home loan tenor is longer
A home loan balance transfer involves a processing charge. Hence, opting for a balance transfer at the end of the tenor will not be a cost-effective option. The best time for a home loan balance transfer is within the first 5 years of the loan. Within this tenor, an individual pays a considerable proportion of interest on monthly instalments.
- Reduced cost
Candidates usually look for lower interest rates during balance transfer to reduce the overall home loan EMI. However, they should also consider the cost benefit analysis before availing the home loan balance transfer.
They should review with their lender about the adjoining processing charges and other additional costs. Additionally, they should review any penalties for foreclosing the home loan before its maturity with their existing lender. If the benefit of transferring a loan is higher than the cost involved, proceed with the transfer. Thus, selecting an HFC offering nominal processing charges is an ideal choice.
What is the process of a home loan balance transfer?
Here’s how a home loan balance transfer work:
Step 1: Search for a lender offering a lower interest rate and simple repayment terms.
Step 2: After selecting a new lender, submit a letter mentioning a home loan balance transfer to the existing lender.
Step 3: They will issue the following documents:
- Letter of consent
- No Objection Certificate
- Foreclosure Certificate
- Property documents
- Statement with repayment history
Step 4: Now apply for a home loan balance transfer to a new lender. Submit all relevant documents such as identity proof, NOC, and others.
Step 5: After verification, the new lender will determine your financial status and eligibility for a balance transfer.
Step 6: After qualifying for a home loan transfer, the new lender will issue a cheque on the principal amount to the prior lender. The old lender will transfer the applicant’s loan documents to the new financial institution.
Step 7: The transfer process will conclude after all the post-dated cheques are cancelled.
Regardless, individuals need to check home loan eligibility criteria for loan transfer with the new financial institution before proceeding. Also, opt for an HFC, which offers a housing loan along with pre-approved offers. This further streamlines the application process. Usually, such offers are available on financial products such as home loans and loans against property. Willing applicants can check their pre-approved by entering their name and contact details.
Typically, existing borrowers opt for a loan balance transfer to benefit from reduced EMIs and avail added facilities such as top-up loans. Such a feature allows borrowers to fund their other financial requirements. For example, expenditure in home renovation is the ideal way to use the top-up loan.
Also, an individual can avail of home loan tax benefits under 80C and 24(B) if he/she uses the funds for home renovation or construction purposes.
The interest rate on home loans in India touched the lowest benchmark in 15 years. As a result, many home loan aspirants saw it as an opportunity to transfer a housing loan balance to a lending institution offering flexible terms. Borrowers should keep these pointers to ensure a hassle-free process of home loan balance transfer.