Now your dream of owning a home can be achieved easily by opting for a home loan. For a home loan, you just need to fund up to 10-25 percent of the home value while the remaining cost is funded by the lender. Additionally, to provide repayment flexibility, most lenders offer the loan amount for an extended period of usually up to 20 years. Availability of long tenures allows you to make repayments in the form of easy affordable EMIs.
This said, during the extended time period, you may come across various home loan offers from other lenders that can be highly cost effective. In such a case, you can avail a unique option called a home loan balance transfer.
What is a home loan balance transfer?
A home loan balance transfer is the act of transferring your home loan from your current lender to another lender for better terms and conditions, lower interest rates or extension/reduction in repayment tenures. Availing a lower interest rate through the balance transfer option allows you to lower your EMI, which results in reduction in your overall loan cost. Technically, when you opt for the transfer option, your new lender pays off your outstanding home loan balance to your existing home loan lender. After this, your existing loan account is closed and simultaneously your new account opens, where a lower interest rate is charged.
Pointers to consider before availing a home loan balance transfer –
- Calculate your savings in interest cost
The major goal of a home loan balance transfer is to lower the interest cost of your existing home loan, particularly if you secured the loan at an extremely higher rate, without impacting your existing investments and liquidity. However, as the balance transfer facility is looked upon as a fresh home loan application, your new lender levies processing charge, administrative fee, and other fees during the balance transfer application processing. Hence, you must compute your overall savings in the interest cost after factoring in such charges. You must avail the transfer facility only if your total savings in interest is considerably higher after factoring in the expenses involved in availing it. For calculation of your total savings in interest cost, use the home loan transfer calculator. Note that the home loan balance transfer calculator usually asks for your requested loan amount, requested repayment tenure, income, monthly obligation, loan principal outstanding and other details to compute your total savings and your EMI.
- Renegotiate the interest rate with your existing home loan lender
As a home loan transfer option is looked upon as a fresh loan, you will again have to undergo the loan evaluation, documentation, property evaluation and various other evaluation processes linked with fresh application. All of it can take up substantial effort and time. Thus, you must try and renegotiate the offered interest rate with your existing home loan lender before making the transfer. Go for the transfer option only if your existing home loan lender disagrees to match the rates offered by your new lender.
The prevailing low interest rate regime has allowed many lenders to provide lower home loan rates beginning from 6.55 % p.a. With such low interest rates on offer, you may contemplate to avail the balance transfer facility to transfer your existing loan to another lender to get a lower rate and better conditions. However, before you make the move, ensure to use a home loan finance calculator to understand if the transfer is worth it. The home loan takeover calculator accurately computes your savings in interest cost. If your savings in interest cost is substantial, opt for the balance transfer option.