Are You Thinking About Home Loan Balance Transfer ? Know All About It...!by Sakshi Kharbanda Financial Consultant
When people take home loans, they research thoroughly on the banks and financial institutes offering them and then compare their results to find the best deals. It might be the best deal for them at the time of starting the loan. But over time, many other banks change their loan conditions that could be more favourable to people than their previous loan. There could also be a case in which the customers were not completely and clearly informed about all the terms and conditions of the home loan before it was approved. In these situations, it is feasible for them to make a home loan balance transfer to a new lender to get better terms. But what are the things that you need to know before making such a transfer? The following article will help you to know everything about home loan balance transfer.
What is a home loan balance transfer?
A home loan balance transfer is a process of changing the lender from which you have taken a loan. The process is also known as refinancing and almost every loan lender offers this facility. That means if you have the required eligibility then you can transfer your home loan to get a better deal.
Lenders always try their best to retain their responsible customers by offering them the best rates and terms. If you found a better deal for your home loan, then you can ask your existing lender to lower your interest rate after considering your credit score and repayment track record.
How does a home loan balance transfer work?
Once the new lender approves the loan balance transfer, the outstanding balance of the current loan is transferred from the previous account to the new account by the new financer. As it is a complete product in itself, it is considered as a new home loan application and all the formalities and charges are applied as that of any new home loan application. This means that you will also have to pay the loan application fee, processing fee, etc. again to your new financer.
Basic documentation required
Because the loan transfer is treated as a new loan, the documentation required for the loan transfer is also the same as the new home loan application. This includes PAN Card, Address proof, ID Proof, latest 3 months of income proof, latest 6 months of banking details and copy of property papers if necessary. Apart from that, the ‘Loan Account Statement’ and ‘List of Documents’ are the other two documents that the current financer has to provide to the new financer. The ‘List of Documents’ is a document that includes the names of all the documents that the borrower has submitted to the present loan lender.
Conditions in home loan balance transfer
Home loan balance transfer does not only depend on the customer to start the process. There is one condition to be met to avail the benefit of this transfer. To make a balance transfer, you must have served your current loan at least for a predetermined period. Normally, banks and other financial institutes keep this period at 12 months. This means if a customer has paid 12 EMIs, he/she will be allowed to avail the benefit of the balance transfer. The logical reason behind these 12 months is that the financer checks the current track record of the customer’s loan repayment. If there are any bounces or discrepancies within this period, the refinancing application will be rejected.
Situations where a home loan balance transfer make the most sense
You cannot transfer the balance of your home loan every time to find lesser interest rates. Here are some situations where this step makes the most sense.
When the remaining loan tenor is considerable
If the home loan repayment process is in its initial years, it makes more sense and seems profitable to balance transfer to get the most favourable deal. However, if there is not much time left, it does not make much sense to go through all the paperwork and also bear its processing fees.
When the unpaid loan amount is substantial
If the unpaid loan amount is high, then it is wise to choose a lower interest rate so that you can save more money for yourself. But if only 5-10% of all the total loan is left to repay, then it is best to stick with your current lender and close the loan quickly.
When overall cost is reduced
Most borrowers only look at the lower interest rate while thinking about refinancing. But it also includes other costs, such as processing fees, that borrowers must have to pay. Therefore, it is advisable to check the overall cost of loan transfer and then apply for refinancing if it’s cheaper than your current lender.
There are two things to consider related to cost-benefit while transferring your home loan.
Consider every involved cost
It’s an obvious thing to do to check all the costs involved in a home loan balance transfer so that you don’t have to face loss after all the hard work. These could be anything from a penalty from the existing lender for a closing loan early to a processing fee from a new lender.
Consider the hassle
Refinancing is a tricky process that requires lots of paperwork and time. So, before applying for it, you have to consider all the hassles it includes, like documentation and running around from one bank to another.
Buying a home is a huge financial decision and so is getting and repaying a home loan. Any slight variation in the rate of interest can make a huge difference in the total balance that you have to pay to clear the loan. For always having the best deal while repaying the home loan, the facility of a balance transfer is available to borrowers. But, as aforementioned, there are some criteria and conditions involved in this process that you should know to check if your loan transfer decision is valid.
Created on Jan 24th 2022 06:35. Viewed 198 times.