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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