Amidst the hyper-competitive home loan market, a borrower is undoubtedly spoilt for choice. Now, for obvious reasons, you'll switch to the side where you are being benefitted. However, in order to ease their financial burden, many borrowers prefer the option of a home loan transfer. Hence, lenders have come up with various offers to lure borrowers into availing of balance transfer loans.
Being a borrower, it is essential to examine all the options in front of you so that you end up opting for the right loan from the right lender so that you don't have to keep transferring loans in the future. However, there's no harm if you find yourself in such a situation. Remember, there are certain steps you need to take into consideration for a home loan transfer. But before jumping onto that, let's clear the basics first.
What is a home loan?
It is a credit facility provided by banks and NBFCs (Non-Banking Financial Companies) to those planning to buy a house or land, build a house on their plot, or renovate their residence and maintenance needs.
Each month, a portion of the principal amount, along with interest, is paid through EMIs. Notably, both the interest and principal components qualify for a tax deduction. Also, one gains complete ownership of the property after the end of the tenor when the interest, as well as the principal, is fully paid.
What is a home loan balance transfer?
It is the process of moving your home loan from one lender to another for a better interest rate and various other benefits. Undoubtedly, one goes for this option due to certain conditions like rising expenditures and inflation. But, remember, when one is burdened with a loan, a high rate of interest directly impacts the personal finance due to which the transfer takes place. This entire process makes sense, especially if one has a longer tenure left to repay, as they will make substantial savings on the interest outgo.
What are the 5 things to consider before transferring a home loan?
- Negotiation of Rate of Interest
Once you plan for a home loan transfer, you should definitely consider negotiating with your existing lender for a lower interest rate. It is highly likely that if you have a loyal relationship with your financial institution and have paid all the EMIs (Equated Monthly Instalments) timely, they may consider your negotiation request after taking factors such as your credit history and loan repayment capacity into consideration.
- Balance Transfer Charges
Transferring your home loan balance every time you come across a lower interest rate might not be a wise choice as there are charges involved. The entire process of a home loan transfer involves several charges such as processing fees, application fees, administration charges, inspection fees, etc. In addition, there will be some charges which will be charged by both your existing bank as well as the new lender. So, after proper calculation, ensure whether it is worth paying all the charges.
- No default on EMIs
Another essential factor to take into consideration is that you need to ensure that you haven't defaulted on your EMIs. In case you have one with your existing lender, it will reflect on your credit score and report. Don't forget that your new lender will check these factors before approving your transfer request. So, if you are planning a home loan transfer and your new lender finds irregularities in repayment, then it is highly likely that your request might get rejected.
- Get all documentation in one place
Proper Documentation plays a critical role in the loan application and transfer process. So, before initiating the process, ensure that you have all the documents in one place so that there are no roadblocks in the entire process. Additionally, get in touch with your existing lender and get a written assurance that they will hand over all original documents to the new lender within a specific period.
- Ensure you have a longer tenure left
If you find a lender offering you a lower interest rate, switch only if you have a long repayment tenure left, as only then you'll be able to make significant savings on the interest outgo. However, a home loan transfer doesn't make sense if you have only two to three years left, as you may need to bear processing fees and other miscellaneous charges.