In the past year, the RBI has consecutively slashed its repo rate several times to boost the performance of the lending sector. Consequently, financial institutions have also lowered their interest rates, thereby increasing the demand for advances like home loans.
Now, before deciding to avail a home loan, an individual is likely to compare different rates of interest, the period of repayment and other parameters. It may so happen that after availing the advance, the borrower comes to know of another lender who may be offering a lower rate of interest with better repayment conditions. In such an instance, one may consider availing the option to refinance the amount availed, by initiating a home loan transfer.
What is a home loan balance transfer?
The loan balance transfer facility pertains to transferring the outstanding principal amount of an existing loan to another financial institution to enjoy accelerated benefits. The original lender, upon refinancing, receives the unpaid amount, whereas the borrower has to pay monthly instalments to the new lender against a new interest rate.
What are the primary advantages of home loan transfer?
This loan transfer offers a range of benefits, should the borrower meet the relevant requirement. It is usually advised to conduct a cost-benefit analysis before transferring the loan. Here are a few of the advantages –
- Favourable repayment terms
Usually, different lenders set varying terms for repayment. Home loan refinance may be a better option if another lender offers favourable conditions pertaining to tenure, foreclosure and pre-payment facilities, etc. Such a deal would automatically make repayment easier.
- Lower rate of interest and monthly outgo
It is one of the main reasons to refinance your home loan now. When another financial institution extends an attractive home loan interest compared to the existing lender, the monthly outgo for home loan invariably reduces. Consequently, the borrower’s financial burden also eases. To know these details, you can use a home loan balance transfer calculator.
- Availability of a top-up loan
Home loan transfer includes certain indirect benefits as well. While better repayment conditions and a lower rate of interest amount to direct benefits, one of these indirect benefits involves availability of a top-up loan. Through the facility of top-up loan, borrowers have the option to avail an additional amount, over and above the existing loan, if required.
Reputed housing finance companies may offer a high-value top-up over a home loan, of up to Rs.50 lakh without the hassles of extra documentation.
- Option of pre-approved offers
Certain lenders extend pre-approved offers along with a host of discounts and schemes to attract prospective borrowers. There is much to be gained from availing these special benefits. However, it must not be the sole reason why one should consider refinancing their home loan.
Some lenders extend pre-approved offers to help streamline the entire application process. The offer is provided for financial products such as home loan, loan against property etc. You can check your pre-approved offer by submitting essential details like name and contact number.
Few points to note
Before opting for a home loan transfer, borrowers should bear a few aspects in mind so that they can manage to derive maximum benefit from this process –
- It is better to initiate the transfer in the initial years of a loan’s tenure. This is the time when the interest component of a loan outweighs the principal amount in EMIs.
- Borrowers must remain highly cautious during loan transfer, and a lower interest rate must not be the sole consideration to opt for this process. Various other charges such as foreclosure and pre-payment also have to be taken into account. Those are also some of the important clauses of your home loan agreement to keep in mind.
Thus, if another financial institution offers a better deal on a home loan, you may follow up with your lender to reconsider your existing rate of interest based on credit score and repayment record. You can choose to transfer home loan balance at a lower rate of interest in the absence of re-negotiation.