Understand How Home Loan Balance Transfer Can Help You
A home loan balance transfer allows the borrower to move the existing
loan to another lender who is offering a more comfortable rate of interest. This
subsequent lender pays a borrower’s outstanding balance to his/her present
lender. After This balance is cleared, the latter releases all property
documents and issues a no-due certificate.
This certificate, along with other documents, is submitted to a new
lender. The borrower will have to pay the remaining EMIs of the home loan to
the existing financer in accordance with its rate of interest.
Various factors to
keep in mind before a balance transfer
·
Outstanding balance on an unpaid loan
A borrower
must consider the amortisation chart for his/her current home loan. This would
indicate proportions of interest and principal on EMIs. If your interest
payable outweighs the principal payments, a housing loan
transfer can be beneficial.
If the
outstanding interest is too less, it is inadvisable to opt for a balance
transfer. In such a scenario, the borrower is likely to be imposed with similar
or even higher charges.
·
Interest rate
Home loan
balance transfer should be undertaken by the borrower only if the prospective
new lender can offer reduced interest rates.
·
Remaining period for loan repayment
Balance transfer
amounts to a good financial decision for the borrower if there is a longer tenor
left for repayment. It is only then that the individual will be able to make
considerable savings with the interest outgo on the home loan.
Benefits of home loan
balance transfer
Even though balance transfer of a home loan is similar to availing a
fresh loan, it provides a host of additional benefits.
· Home loan can help benefit
from a more affordable rate of interest. Such interest rate automatically
reduces your monthly instalments or shortened tenor of home loan.
· The terms and conditions
of a loan may be negotiated based on your credit score and payment track
record, among others. The borrower is likely to obtain better benefits from his/her
present lender.
· Lenders may also
provide a top-up loan in the event of home loan balance transfer. Such loans do
not have end-use restriction and can be used to settle other existing debts or any
other purpose.Lenders use the present market value of the property as a
benchmark to determine the top-up loan value. If the top-up loan on a home loan
is invested for home improvement, the borrower can claim exemptions under Section
24(b) of Income Tax Act, 1961.
·
The reduction in
interest outgo may lead to higher monthly savings.
·
A home loan transfer
may also have a positive impact on the CIBIL score of an individual.
While a home loan balance transfer comes with a range of benefits, it is
important to note that it involves substantial cost as well as time. Hence, the
decision to transfer should be taken after conducting due diligence. The
borrower can save substantially with a home loan transfer provided the process
takes place seamlessly.
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