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We often don’t want to miss that one unique opportunity that might benefit us in the long term. And what can be a terrific opportunity than transferring a home loan balance at a lower rate of interest? Yes, it is possible as this aids borrowers to save on equated monthly instalments (EMI).

What is a home loan balance transfer?

A home loan balance transfer is the process of moving an existing home loan to another lender at a reduced interest rate with other benefits. It is very similar to availing of a new home loan.

Once a borrower makes a balance transfer, the complete outstanding balance of the loan is transferred to the new account, and the new lender pays the prior lender the remaining sum and closes the account. The new interest rate enables the borrower to save on EMIs and the interest expense on a house loan.

What are the benefits?

-With a balance transfer, you can obtain a home loan at a rate as low as 6.50%, resulting in a reduced monthly payment and more savings.

-When you choose to transfer your house loan to another bank, one should negotiate with the new lender for a more favourable repayment period or terms that meet your needs.

-With a home loan balance transfer, you can obtain additional funds above and beyond the amount of your existing loan at affordable interest rates. 

-Finally, many banks offer you the choice of a smart saver home credit facility or a maximum gain home credit facility to help you save money on your house loan.

What is the process involved? 

-Calculate the expected cost of the balance transfer, taking into account the various fees involved with the transaction.

-Select a new bank to whom you desire to transfer your loan; determine whether or not you require a top-up loan.

-Obtain a list of property documents deposited with your current bank (if you do not already have one) and a foreclosure letter from your current bank.

-Apply for a loan with a new bank using a photocopy of the property documents listed with the old bank.

-Obtain a letter of sanction and enter into a new loan agreement

-Accept payment from the new bank in a cheque/demand draft payable to the existing bank and deposit the same.

-Collect property paperwork from the previous bank and deposit them with the new bank.

Things to consider before applying for transfer?

– Before initiating the home loan balance transfer, negotiate a low interest rate with your existing lender. If you have a long-standing relationship with your bank, it may examine your request based on your credit history and ability to repay loans.

– Your credit score indicates whether or not you are qualified for a balance transfer. If you have a history of not repaying credit on time, this will have a negative effect on your credit rating. A low credit score makes you less eligible for loan transfer, as the new bank will consider your credit score in addition to other reasons.

– Charges associated with the balance transfer process include processing fees, application fees, administration fees, and inspection fees. There will be fees assessed by both your old and new lenders. Work out whether the cost of a balance transfer is less than the amount of interest you are paying.

– Once you’ve picked a lender for a balance transfer, be sure to carefully read the terms and conditions to prevent being surprised by any hidden fees. Ascertain that you are aware of the loan incentives offered by the new bank.

– Experts advise against taking out a balance transfer loan if your loan is reaching the conclusion of its term or if you want to sell your property in the near future.

What are the charges associated with the transfer?

-Charges for home loan transfers vary according to your current bank, your new bank, and the state of the transfer. The significant fees associated with loan transfers include foreclosure charges to your previous bank, processing fees, title deed charges, and other minor fees.

– Charges for foreclosure are payable to the existing bank for taking over fixed rate house loans. Banks are not permitted to charge fees to foreclose on floating-rate loans.

Transfer processing fees might range from a flat fee of 10,000 to as much as 1% of the loan balance. Banks, on the other hand, occasionally give savings on processing fees. 

Check your eligibility first and foremost

-If you have an outstanding home loan, you can choose a balance transfer. Age, income, employment history, and loan-to-value ratio are the primary eligibility conditions.

-Before choosing the balance transfer, an applicant must have paid at least six to twelve EMIs on its existing loan. This restriction, however, may be waived at times, and a house loan takeover may be possible even if the loan has not been paid off for six to twelve months.

-There should be no default on existing loan EMI payments.

-If the property is still under development, the project must be approved by the new lender. Take note that a balance transfer of a home loan on a newly acquired property may not be allowed if possession has been transferred, but registration has not been completed.

-Registration should have been completed in the case of ready-to-move property.

Should you opt for it?

Recognise your rationale for refinancing. Are you looking for a more flexible loan or a loan with a shorter or longer term? It is critical to exercise caution when making this move, as it may have a negative impact on your savings in the long run.

Consider all the variables and fees and conduct a cost-benefit analysis before making the switch. However, before pursuing a refinance, you can always attempt to negotiate with your present lender. If the lender accepts, you will save a significant amount of money and time.