Tips for Home Loan Balance Transfer

Home loan refinancing or balance transfer is opted for availing the benefits from low interest rates that are prevalent in the market. Usually, an existing borrower doesn’t get the benefit of reducing interest rate in the market if he or she is about two or more years into the loan tenure. Even though the Reserve Bank of India has insisted on passing on the lower interest benefits to existing borrowers, it doesn’t happen very often.

This refinancing option enables you to get your existing, expensive home loan transferred to a bank that is offering competitive rate of interest. There are chances that your existing bank will offer a low rate if you get into negotiation as the bank wouldn’t want to lose you as a customer. However, you can still opt for home loan balance transfer and get the refinancing option to fulfill your requirement for additional loan amount. You can also opt for it to consolidate your existing leveraging or to reap the benefits of an attractive offer made by a new bank. Irrespective of the reason, you can get the existing home loan transferred and reduce the overall cost of acquiring a new house.  

How does balance transfer works?

If you wish to get this refinancing option done for your existing home loan, you will be required to submit a letter to the existing lender requesting for the same. You will get a consent letter or NOC (no objection certificate) from the bank, based on your request. The consent letter will also have a statement that will mention the outstanding amount you need to repay.

You will have to provide this letter and statement to the new lender who will sanction the loan amount to the existing lender and initiate account closure. Once this process is complete, the documents of your property will be handed over to the new lender along with the remaining ECS or postdated cheques that will be cancelled.

Based on your current home loan rate, the new bank will be offering you a loan. This rate will be the same that the bank charges to all its home loan applicants. Initially, existing lenders used to charge a prepayment penalty. This penalty varied between 2 and 5% of the principal outstanding of the loan at the time of refinancing. However, many reputed banks have now started waiving off this fee but some banks still levy this penalty on the borrowers.   

If you are serious about getting home loan balance transfer done, make sure you talk to your bank about the penalty. It would be recommended to get into negotiation with the bank, asking for a waiver. Remember, the Reserve Bank of India and NHB mandates are not in favor of charging penalty for pre-payment in case of a loan with floating interest rate.

Whether you apply for a home loan or a mortgage loan against property, make sure you are clear about all documentation and charges that will be incurred.