Understand Home Loan Balance Transfer!

A Home Loan balance transfer (also known as refinancing or balance transfer) is an option that most individuals choose, to take advantage of lower interest rates in the market. Usually, an existing borrower, who is about 2 or more years into his loan tenure, does not get the benefit of reducing interest rates in the market. That is, if he opted for a fixed interest rate. Such individuals could have a discussion with their bank and re-negotiate their interest rate. Citing a good repayment track record, among other things, could help. If the bank is not amenable, they could then shift to another bank or financial institution which offers a lower interest rate for Home Loans.

 

The Transfer Process

 

First of all, you will need to submit a letter to the existing lender, requesting a transfer. Based on your request, the lender will give a consent letter or No Objection Certificate (NOC) along with a statement mentioning the outstanding loan amount. You need to give these documents to the new lender, who will then transfer funds to the old lender for an account closure. Once this transaction is done, your property documents will be handed over to the new lender. The remaining post-dated cheques that you might have given to the old lender will be cancelled.

 

A Home Loan All Over Again

Remember that for a Home Loan balance transfer you need go through all the procedures involved in a Home Loan, once again. These include a credit appraisal, legal verification of property documents and technical evaluation with the new bank. The loan will be approved only when the bank is satisfied with the verifications.

 

The lender that you are shifting to usually offers you a loan based on the current Home Loans in India that their customers enjoy. You can, of course, negotiate and check if they will give you lower rates.

 

 

Take Charges into Account

Some banks charge a prepayment penalty for a balance transfer. This can vary anywhere between 2%-5% of the principal outstanding amount of the loan and depends on your lender. However, recently many institutions and some banks seem to be waiving this off for their customers. Check with your bank and try to negotiate a waiver if charges are applicable. Also, note that you might have to pay a processing fee to the new lender. This can range from anywhere between 0.5%-1% of the loan amount, even though most banks restrict this amount to Rs.5000. You could ask your new lender to waive this off.

 

Take these charges into account when you are comparing lenders before initiating your balance transfer. If you feel there is a significant amount of interest to be saved from the move, then you can make a profitable switch.

 

Apart from saving on interest, there are a few other reasons why you could consider switching to another Home Loan, these include:

 

Bank makes a fuss: You might want to re-negotiate certain terms and conditions with your bank. For example, you might wish to extend the tenure of your loan to lower your EMI. In case your bank does not agree, it would make sense to switch lenders.

 

No Top-up: The costs connected to the property that you purchased might have gone up significantly. Considering this, you might want a top-up loan to renovate your home or meet any other needs. If your lender is not open to providing such a loan, you could consider switching to another lender.

[Source: https://blog.bankbazaar.com/opting-for-a-loan-transfer-heres-some-know-how/]