A home loan balance transfer is a process that allows borrowers to shift their total outstanding loan amount to another financial institution for lower interest rates. Home Loan Transfer facility is offered by almost every reputed financial institution and is considered as one of the most common methods to lower home loan interest rate during repayment.
Home loan takeover offers several benefits other than a reduced rate of interest, some of these are mentioned below –
Advantages of Balance Transfer
Reduced interest rate
The most prevalent reason for a balance transfer is to avail a lower rate of interest. Reduction in interest rate lowers the payable EMIs and helps decrease the overall cost incurred during loan tenor. It can help save a substantial amount during loan repayment.
Nonetheless, an applicant should keep track of a few things while applying for a home loan balance transfer.
One such important factor is the interest rate regime. Most government-backed and private Housing Finance Companies follow RLLR or MCLR-based lending rates. It is necessary to consider the different rates before opting for a balance transfer to maximize savings. Borrowers can utilize a home loan transfer calculator to determine the total difference.
Several HFCs offer top-up loans to eligible candidates during home loan balance transfer. These credits are provided over and above the existing line of credit to cater to various financial requirements.
The top-up loans can be considered as one of the most important benefits of a balance transfer. These credits are disbursed without any end-use restriction, making them ideal for a homeowner to cover multiple expenses. An affordable rate of interest also helps with the repayment, ensuring zero financial strain experienced during the loan tenor. Most importantly, top-up loans can be availed without submitting any additional documents.
However, a borrower should keep in mind some crucial aspects, along with the benefits, while seeking a home loan balance transfer.
Take a look at some of the important factors that come into play while performing a balance transfer:
The total cost of the transfer
The process of balance transfer includes certain fees and charges, like a penalty fee paid to the existing financial institution to foreclose the line of credit, and a processing fee paid to the new lender during home loan takeover. These fees are usually calculated based on the principal amount.
A borrower should carefully consider these additional expenses associated with the balance transfer before availing the facility. If he or she is already done the majority of the repayment tenor, it might not provide enough savings after paying all these additional fees.
When to transfer
Ideally, one should transfer their home loan when the interest and principal component are almost equal. Lenders retrieve a larger portion of the interest component during the beginning of the repayment tenor. Opting for a balance transfer after that period will force a borrower to repay interest on most of the principal amount again. That is why financial experts suggest opting for a home loan takeover during the beginning of a loan tenor.
A home loan balance transfer can prove significantly beneficial, especially when HFCs are offering a lower rate of interest. A borrower can save a considerable sum if he or she keeps all the above-mentioned aspects in mind while opting for a balance transfer.