Purchasing a home is among the most significant decisions in a person’s life, especially if you decide to take out a home loan. Transferring your home loan balance could be a wise option to ease the burden of home loans, as it is a long-term financial commitment.
Borrowers with housing loans with higher interest rates may consider switching their current debts to other lending institutions offering lower interest rates, better terms and conditions, and enticing rates. But they need to consider certain facts before making this decision.
Factors to Consider while Planning for a Home Loan Balance Transfer
Home loan borrowers pay most of their interest component early in the loan term, leaving little room for interest expense savings through home loan process transfers later in the term. Due to the ongoing low-interest rate regime, many financial institutions and banks are now offering interest rates on home loans as low as 6.65 percent per annum.
With a home loan balance transfer, you could switch lenders and begin paying EMIs to a new lender who offers more benefits, such as low-interest rates.
Process for Home Loan Balance Transfer:
- Close the deal with your existing bank
- Provide NOC to the new lender
- Transfer documents
If you consider transferring your housing loan balance to some other lending institution, here are some things to think about:
Occupancy Period of a Home Loan
Many experts recommend transporting the housing loan balance early in the tenure. This is because your EMIs primarily protect the interest fraction of your loan during the first 4 to 5 years. Transferring the balance of your home loan at the mid or end of its term will not be beneficial to you because your EMIs will support the principal, and you’ll have already paid a significant portion of the interest.
Fees for Switch-Over for the home loan process
When considering switching your lender to a bank with a lower interest, the user must consider switching-over costs. It generally ranges between 0.5 and 1 percent of the amount owed. You can, however, always try negotiating with your bank.
Rate of Interest
If the interest rate on your existing loan is greater than the market rate, you should transfer the balance. In such cases, transferring a home loan balance becomes a financially advantageous move.
Before trying to transfer your housing loan balance, you should inquire with your current lender about any additional fees, such as penalties or foreclosure charges. Furthermore, many banks will charge processing fees when you choose a loan transfer that you will pay to your new bank.
Terms and Conditions
It is important to learn the terms and conditions of the transfer process of a home loan to a new lender. A low-interest rate may seem tempting, but not going through the terms and conditions can cause disputes later. It can include some hidden charges that you might not be aware of in some cases.
A loan is a long-term commitment that typically lasts more than just a couple of years, and borrowers must devote a significant portion of income to repaying it. The interest rate is a concern for every home buyer in the home loan process.
Home loan balance transfer requests are considered new home loan applications by lenders, so processing fees and other charges associated with new applications are included. Calculate overall savings in interest cost after factoring in these charges and opt for the balance transfer option only if the overall saving is significant enough.
A home loan balance transfer is always an option, but always consider all the facts about the process and make calculations before making a choice!
Also visit: IncomeTax Benefits Associated with a Home Loan: All You Need to Know