Mistakes to avoid during home loan balance transfers

Date : 06/09/2022
Read: 4 mins

Tips for home loan balance transfer!

If you have taken a home loan, you have the option to shift the current home loan to a different bank or Housing Finance Company. However, there are several aspects that one must contemplate before opting for a home loan balance transfer. Here, the main process revolves around the new lender paying the due amount of the client’s ongoing home loan to the previous bank or lender who sanctioned the loan. The client would then be required to pay the home loan to the new bank or lender. He or she is to pay the amount depending upon the home loan balance transfer interest rate, tenure left, home loan balance transfer charges, etc., as made clear by the new bank or lender.

When should you demand a home loan balance transfer?

Here are some situations demanding a home loan transfer or a home loan takeover:

There is a significant difference between the interest rate charges by different banks or housing finance companies (HFC). The rate of interest depends majorly upon the credit profile of the person applying for the home loan. It is always economically more favourable to opt for a bank or HFC that is offering lesser interest rates as compared to your existing lender. Thus, you should opt for a home loan balance transfer if another lender offers a lesser interest rate, decreasing your monthly EMI burden. However, it is important to remember that interest rates are flexible and subject to fluctuation.
Significant improvement in the existing borrower’s credit profile qualifies them for a lower rate of interest. Credit score, monthly income, and so on of existing borrowers are some of the major parts based on which their credit profile differs. Thus, if the amount that you earn in a month increases significantly, you may be required to pay less interest for the home loan that you borrowed.
Top-up home loans are provided by banks and HFCs to some borrowers. However, to receive the top-up, the borrower needs to have repaid the EMIs for 12 months without missing a single instalment. Also, the borrower’s repayment history should be satisfactory. Only then can an existing home loan borrower receive a top-up. However, home loan balance transfers with top-up facilities are offered by several lenders on balance transfers. Thus, if the situation favours you, you can safely opt for a home loan balance transfer with a top-up. You can also take advantage of this in case you are not eligible for a top-up from your existing bank.
If you have taken a home loan, your interest component will be higher during the first few years of the loan tenure. Also, with time, the amount in EMI becomes higher till you successfully repay the whole amount along with interest. Thus, opting for a home loan balance transfer during the initial loan tenure can prove to be economically more suitable for the borrower. Thus, it leads to higher savings in the initial years of your loan tenure.
If you are an existing home loan borrower who is considering the balance transfer option, you must make sure that the new loan tenure is the same as the previous loan tenure of the bank or lender from whom the balance transfer was made. This is because longer tenures will lead to a rise in overall cost for you. Thus, it makes no point since you primarily make the balance transfer due to the reduced gross rate of interest. However, in case you want to reduce your monthly EMI burden, you may opt for a new lender with longer tenure.

What should you do?

So if you are an existing borrower who is considering a balance transfer of a home loan, make sure to consider the various factors and criteria mentioned above. Another crucial point that you need to consider is the home loan balance transfer charges. This will help you decide upon the right time for making the transfer and help you to choose for or against it. Make sure to come to a well-informed decision as a home loan balance transfer offer can impact your finances both positively and negatively.