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Home loan is getting cheaper fast and is now at lowest ever levels. Some leading banks and nonbanking financial companies are offering home loans with an interest rate as low as 6.6%-6.65%. But at the same time some institutions also lend at 8%-9.5%. For the sake of the common man bank loan portability is now available. A person can change his home loan from one bank to another during the repayment tenure and get the benefit of a lower interest rate.

Balance transfer makes sense when some other bank or housing finance company offers you a lower rate of interest than what your loan currently carries. A lower interest rate results in lower EMIs and you also save on interest cost. Lower interest rates are one of the primary reasons why people opt for balance transfer. Such borrowers must take the following factors into account before opting for the home loan balance transfer option.

Check interest rate

If the new lender is advertising a lower interest rate, it is essential to get more information on their interest track record. Visit the branch and check if the interest rate offered by the bank is for a long term or is it a short term offer. Talk to the service manager and then decide.

Calculate your savings

The primary reason for opting for a home loan balance transfer is to reduce the overall interest cost and EMI burden of the existing loan. The transfer option is especially beneficial for existing borrowers who have become eligible for availing of home loans at lower rates due to their improved credit profile.

So first do the calculation and find out what will be your savings and then proceed for the transfer.

Know the charges

Since home loan balance transfer requests are treated as fresh home loan applications by lenders, they levy processing fee, administrative charges and other charges associated with new applications. Thus, those are planning to opt for a transfer should calculate their overall savings including these extra charges and then proceed further.

One should opt for the balance transfer option only if the overall savings in interest cost is significant enough after factoring all the extra cost involved in doing so.

Top up loan

Before transferring the balance loan amount, please check with the new bank that top up loan facility is available or not. If you need some extra cash for your household purpose you might need a top up facility.

Cons of transferring

Opting for a home loan balance transfer during the later stages of the loan tenure would not be of much use. Home loan borrowers pay most of their interest component during the earlier stages of the loan tenure, thereby leaving little scope for making interest cost savings through loan transfers during the later stages.

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 as opting for longer repayment tenure would result in higher interest cost.

Interest rate negotiation

Before you opt for home loan balance transfer, try negotiating with your existing lender for lower interest rate. If you have a loyal association with your bank and have paid all EMIs on time, your lender may consider your request looking at your credit history and loan repayment capacity.

This way you can lower your EMI burden without having to pay prepayment, transfer, foreclosure charges, processing fees, application fees and administration charges.

So, look carefully before you take the plunge.