Factors to Consider Before Opting for a Home Loan Balance Transfer

What is Home Loan Balance Transfer

A home loan balance transfer is a process of moving your home loan from one lender to another at a lower interest rate and avail wider benefits. The high home loan interest has a significant impact on the EMI (equated monthly instalments), making it difficult for you to repay the loan, and creating a burden on your personal finance.

While home loan balance transfer or home loan refinancing is a great way to reduce the finance stress and save a lot money, it is paramount that you consider the following factors:

• The new lender’s credibility

While you compare the home loan balance transfer interest rate, you must not get carried away by the various lenders offering the loan at lower interest rate. Instead, you must do a thorough research about the lender’s credibility. Make sure to transfer the loan with only a renowned lender.

• Consider the balance tenure of your existing loan

Before you initiate the home loan balance transfer process, you must analyse the balance tenure of your existing home loan. Let us assume, you have availed a home loan for 25 years. In this case, it is best to opt for home loan refinancing during the initial 10-12 years to get the maximum benefit of loan transfer.

If you have only a few years remaining, say five years, before you close the loan, you may have already paid the interest amount payable on the loan. In this case, refinancing is not a good idea; you may end up paying more interest on the new loan. So, be careful about this and transfer the loan during the earlier half of the tenure.

• Costs associated home loan refinancing

When you opt for home loan refinancing, you must be aware of the associated charges. Before you initiate the process, make sure to compare the home loan balance transfer charges levied by different lenders and refinance the loan only if it is beneficial for you.

Typically, the refinancing charges include stamp paper duty, documents handling and verification charges, loan process fees, etc. If these charges are more than your savings, it is illogical to refinance your loan.

• Terms and conditions of the new loan

When you transfer your home loan to a new lender, you must be aware of the terms and conditions of the new loan. Make sure to read the fine print carefully. While the lender may be offering the loan at a lower interest, there may be hidden charges involved or they may not give you the repayment flexibility.

So, fully understand the terms that the new lender is offering and complete the process only if the conditions are beneficial to you.

• Check your credit score

When you apply for a home loan balance transfer with any lender, they will consider your credit score as one of the important factors to determine your eligibility. If you have repaid all your EMI on time, and have an excellent credit score of 750 or more, chances are high that your application will be accepted and get the loan with better terms and conditions.

So, check your credit score and the minimum requirement by the new lender, and if it is low, take step to improve it before submitting the application.
 

Benefits of home loan refinancing

• One of the most important benefits of opting for home loan balance transfer is that it allows you to save a lot of money on the interest payment. By transferring you loan to a new lender you can repay the loan at a lower interest and manage the repayment easily.
• If you availed a home loan at fixed interest rate initially, and later realised that floating interest rate loans are cheaper and affordable, you can change the type of interest rate charge on your loan by refinancing it.
• Another significant home loan balance transfer advantage is that it allows you to reduce your increase in home loan tenure. If your financial condition has become better, you can reduce the tenure while refinancing it and repay the balance amount at a lower interest rate. Thus, you can also become debt-free faster.
• Apart from lower interest rate and savings, when you transfer your home loan to a new lender, you may get many other value-added services like zero foreclosure and prepayment charges, lower penalties, better customer services, etc.

 

To Conclude

Home loan balance transfer is beneficial in many ways. But you must be careful about it and weigh the pros and cons before initiating the process.

If you're looking to potentially lower your interest rate, extend your loan term, and potentially save money on your home loan, a balance transfer with India Shelter could be a good option. However, it's crucial to weigh all the factors involved and make an informed decision.