To make home-loan balance transfer profitable, do proper analysis, meticulous calculations and use this checklist!
Many people opt for home loans to fund their dream house. But after the loan is sanctioned, some borrowers often switch their existing lender due to various reasons.
Home-loan balance transfer involves proper analysis and calculations on the borrower’s part to ensure they don’t end up regretting this decision.
Here are 4 scenarios where home loan balance transfer will prove a good option for you.
1. Lower interest rate offered by competitors:
Home-loan rates vary with each bank and HFC, and from period to period, which often leads to a scenario where a lender has a lower interest rate than your current home loan provider. Interest rates may go to a low of 8.35% per year currently, depending upon the customer’s profile and the loan amount. Borrowers must first request their existing lender to lower the interest rate on their home loan if some other lender has a lower interest rate. If the existing lender refuses, you may opt for a home loan balance transfer.
“Make sure you calculate the amount of savings you would make once you transfer your loan to another lender. Also, charges levied by the current lender for transferring the home loan may sometimes be high, reducing your savings by a substantial margin.
For example, a lender may charge a foreclosure penalty in the case of fixed interest-rate loans. Only if the savings are substantial, should you go ahead for a home-loan balance transfer to another lender offering a lower interest rate, which give you substantial savings for the rest of the tenure,” Naveen Kukreja, CEO and Co-Founder of Paisabazaar.com, says.
Also, it’s not advisable to go for home-loan balance transfer during the later stages of your tenure, as borrowers normally pay a major part of their interest component during the earlier stages itself and this decision may not lead to much savings during later stages if you opt for a higher tenure loan again.
However, at whatever stage of the loan repayment tenure you may be, keep in mind the following points while considering a home loan balance transfer:
a) Try keeping the tenure of your new loan exactly the same as the remaining tenure of your existing loan. This saves you from the burden of extra interest which you would have already paid in case you took a higher tenure than the remaining one for the new loan.
b) If you, for some reason, want to ease off your EMI burden, you may opt for the highest tenure possible for the new loan, and pay off this loan whenever you are comfortable and have surplus available.
2. Requirement for top-up loan not met:
Many borrowers often require additional funds, in addition to the existing home loan, for personal needs, like the renovation of the house.
“You can approach your existing lender to grant you a top-up loan and in case your lender refuses a top-up on your home loan due to ineligibility or any other reason, consider changing your lender by opting for a balance transfer. Sometimes, a borrower may meet the eligibility conditions of one lender and not of another. Therefore, if you are denied a top-up loan or if the amount sanctioned doesn’t suffice, you may consider transferring your current home-loan balance to another lender who offers you a sufficient top-up and marks you eligible for it,” Kukreja says.
3. Better terms being serviced by other lender:
Often, borrowers aren’t satisfied with their existing lender and may notice or come across some additional or better services with other home loan lenders. In such a case, you can get the existing home-loan balance transferred to that lender to avail those additional services.
“Since home loans generally involve long tenures and huge amounts, compromising with your lender for the whole tenure isn’t the right decision. Therefore, consider a balance transfer if you are dissatisfied with your current lender’s service standards,” Kukreja says.
4. Additional product features:
Many banks offer additional features on home loans, like smart home or flexi loan. Availing these products reduces your interest burden considerably, compared to a normal home loan. Therefore, opt for a new lender and avail these benefits and reduce your interest outgo.