A home loan balance transfer is when you move from one lender to the other with your current outstanding. Home loan balance transfers happen when borrowers are looking to move to lower interest rates or extended loan tenures or a mix of both.
Like what you're reading?
Get our latest, straight to your inbox.
Reasons for Choosing a Home Loan Balance Transfer
Home loan balance transfer is chosen by borrowers when they wish to go for a better deal in terms of a lower rate of interest with no prepayment penalties etc. Switching off the loan means paying off the remaining balance of the existing loan and starting a new loan with the new lender. The borrower then starts paying the EMIs to the new lender. The quantum of savings is dependent on the outstanding amount, tenure, difference in interest rates, and other charges.
Check Your Credit Profile
Before you decide to look for a new lender, understand the process, etc., please make sure that you check your credit profile. Check if all your information is accurate and updated. If you have defaulted or missed payments, etc., and your credit profile has taken a hit, then please don’t look for a home loan balance transfer. As the new lender will check your credit profile, the chances of rejections will be higher. Once a lender rejects, you can’t reapply with that lender for the next 6 months.
It is advisable to first rectify your weak credit profile and only then look for a new lender. But if you have been an excellent borrower, then please go ahead to look for a new lender. In that case:
Points to Remember Before Choosing a Home Loan Balance Transfer
Interest Rate Negotiation
It is in your best interest to first try and negotiate for better rates with your existing lender. If you have been a good borrower, and there are multiple relationships with the bank, then there are high chances that they would prefer to retain you. Chances of getting better interest rates are higher in such cases. This is ideal as you will lower your EMI burden without having to pay prepayment, transfer, foreclosure charges, processing fees, application fees, etc.
Most importantly, check if the new lender is genuinely offering the promised lower rates or if there are some hidden charges. Marketing gimmicks, short periods on offer, etc., be careful. To ensure there are no misspellings, etc., ask for the offers in writing that are applicable to you.
Calculate the Actual Cost of Transfer of Loan
Transferring your home loan balance transfer involves several charges like processing fees, application fees, etc. Most banks charge transfer fees; however, you can request a waiver of these fees. After accepting the offer for a lower rate of interest, find out the actual, real expenses you will have to incur to do the balance transfer. Only after proper calculation, you know whether the transfer is worth paying all the fees.
Check the Credentials of the New Lender
What are their policies before disbursal and the turnaround time before actual disbursal happens, etc.? Do they insist on co-borrowers or guarantors? Number of documents, how good is their branch network, etc. Lastly, please go through the grievance redressal policy followed by the new lender. In case of any delays, etc., by your existing borrower, what kind of support will you be provided? In case of any issues, what is the hierarchy followed to address the issues, etc.?
Conclusion
While it is advisable to be agile and transfer loans from higher rates to better rates, it is equally important to check what are the ‘real costs’ that are involved. It is always better to move to better lenders (for e.g., cooperative banks to NBFC/NBFC’s to banks). While you close the old relationship, make sure all the originals are collected, NOCs issued, and your credit profile is updated. At the same time, accept the offer by the new lender only after all the terms and conditions are given to you in writing.
