Spurt in balance transfer of home loans as borrowers aim to save on lending rates

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With lending rates ruling at record low levels, there is a sudden spike in the transfer of home loans from one lender to another. Borrowers stand to gain by changing the lender as they will be offered lower interest rates than the existing ones.

Magicbricks study

According to the Magicbricks Home Loans Consumer Study – H1 2021, there was a 42% rise in demand for balance transfers and a 26% rise in demand for home loans in the first half of 2021 compared to the second half of 2020.

The study said the RBI keeping the repo rate at 4% has let lenders offer a sub-7% lending rate on home loans. This acts as a key driver in boosting the demand for home buying, it further said.

Fresh home loans are largely linked to repo rates as RBI made it mandatory in October 2019 for lenders to link their home loan rates to an external benchmark. A lower repo rate or status quo on repo rate should enable borrowers to borrow at a lower cost or same cost, which helps keep interest costs down in an already low-interest-rate environment.

Transferring the entire principal amount of an outstanding loan to a lower-interest bank is known as a balance transfer.

For balance transfer, banks normally charge a certain percentage of processing fees on the outstanding amount. Depending on the states, there are also incidental charges like on loan agreements by banks.

Magicbricks CEO Sudhir Pai said that nearly 50% of borrowers want tenures of less than 15 years while expressing the hope that pent-up demand will now see sales realisation.