Balance Transfer of Your Home Loan

Published on: Feb 15, 2016 @ 03:14

A  home  loan  balance transfer  or  refinancing  is  an  easy  option  through  which  most  of  the  people  avail  the  benefit  of  lower  interest  rates  prevalent  in  the  market. Most  of  the  Indian banks  in  home  loans  do offer the  option  to  transfer  existing  home  loan  to  another  bank. So, you  can  avail  this  option  to  save  on  home  loan  interest  rates.

Reasons  for  switching  Home  Loan  

Sometimes,  the  existing  customers  are  unhappy  with  the  high  rates  due  to  a  high  disparity  between  interest rates  for  existing  and  new  customers. Then,  it’s  time  for  you  to  transfer your  home  loan  to  a bank  offering  a  lower  interest  rate. This  is  easy  now  as  pre-payment penalty  on  floating  rate  loans  has  been abolished.

Often,  after  taking  home  loan  from  bank,  you  find  later  that  the  terms  and  conditions  of the  home  loan are not  according  to  ones  expectations. You  might  want  to re-negotiate  certain terms  and  conditions  with your bank. For  example,  you  might  want  to  extend  the  tenure  of  your  loan  and  lower   the  amount  of  your  EMI  but  your  bank  do  not  agree  to  that, then  you  can  shift  to  a  bank  that  offers  the  same.

If  the  value  of  property   is  climbed  up  much  higher  in comparison  to  its  original  price  then on  the  basis  of this  you  want  a  top-up  loan  to  meet  further  financial  requirements  or  for  a home renovation perhaps. If  your lender  is  not  open  to  finance  this  you  might  opt  for  a  new lender.

Sometimes  you  are  not  happy  with  your  bank’s  service  and  accessibility  and  wish  to transfer  the  loan.

You  should  always  try  to  switch  the  loan  in  the  early  tenure  of  loan. It  is  not  advisable  to  transfer  your  loan  after  2-3  years  of  loan  payment. As  you  have  already  repaid  most  of  the  interest  amount. The  interest component  of  your  equated  monthly  installment  (EMI)  remains very  high  in  the  initial  years. The  higher  the rate  of  interest  or  loan  tenure,  the  slower  is the reduction  in  principal  in  the  first  few  years  of  the  loan.

Remember  that  a  loan  switch  will  not  be  possible  if  you  have  been irregular  with  your  loan repayment  with your  current  lender.

You  should   do  proper  market  research  before  switching   home  loans.

Check  the  benefits: Too  much  spending  in  the  process  of  the  home  loan  balance  transfer  is  not  a very good idea. You  should  always  check  all  the  benefits  and  facts  thoroughly  before  transferring  your  loan  such as  the  processing  fees,  legal  charges, valuation  fees,  stamp  duty, technical  charges   and  other  charges  that  a  new  bank  would  charge. Then  compare  it  between  the  two  offers.

The  processing  fees  can  range  anywhere  between  0.5  per  cent  and 1 per  cent  of  the  total outstanding  loan. Some  banks  may  even  waive  the  fee  if  you  bargain  hard. If  you  feel  there is  a  significant  amount  of  interest to be  saved  from  the  move,  then  you  can  make  a profitable  switch.

Compare  the  total  outflowIf  you  get  your  loan  tenure  increased  by  the  new  lender  by reducing  your  EMI,  it also  increases  the  total amount  you  pay  to  the  bank  because  the interest  keeps  on  adding  to  the  outstanding  loan  amount.  If  you are  paying  higher  EMIs with your  current  bank,  compare  the  total  outgo  for  both  banks  and  then  take  a decision. The longer  the  tenure, the  higher will  be  the  interest  payments  and  higher  will  be  the chance that you  will  pay  more  interest  than  the  principal.

You  should  prefer to  stay  with  your  bank  if  you  are  not  hard-pressed  for  money,  pay  a larger  EMI  and finish off  your  loan  as  soon  as  possible  to  save  all  the  money  you  would overpay  in  the  longer  tenure. Make additional  repayments  to  save  you  interest  and  help  you pay  off  your  loan  quicker.

Check Credibility: Make  it  sure  that  the  new  lender  is  credible  and  the  current  lower  interest rate  offered by  them  is  not  a  just  short  term  promotional  gimmick.

Bank’s  Service  Quality: Ensure  that  the  new  lender  is  good  when  it  comes  to  customer support.

Terms  and  conditionsBefore  signing  on  the  agreement  letter,  you  must  read  all  the  terms and conditions of  both  banks.

Your  loan  transfer  is  only  possible  when  you  are  regular  in  loan  repayments  to  your  current bank. Remember  that  for  a  home  loan  switch  over  you  need  to  go  through  all  the procedures  involved  afresh. These  include  a  credit  appraisal, legal  verification  of  property documents  and  technical  evaluation  with  the new  bank, etc. Therefore,  you  should  not  fall for only  an  interest  rate, or  benefit,  that  is  only  marginally better  but  you  should  also consider other  factors  before  going  ahead  with  the  balance transfer  of  your  home loan.

Ajay Verma

Ajay Verma, founder and writer of TheHousingWorld, a real estate and mortgage news website. He has over fifteen years of rich experience in the above mentioned industries.

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