Tips and Calculations for Home Loan Balance Transfers

Tips and Calculations for Home Loan Balance Transfers

A home loan balance transfer is the process by which borrowers can transfer their outstanding loan from the current lender to a new lender at lower interest rates. After the transfer, your obligation of repayment lies towards the new lender.

You can undergo a home loan balance transfer if an improvement in your credit score has made you eligible for lower interest rates than before. The facility can help you lower your overall interest costs.

Home Loan Balance Transfer Process

A home loan balance transfer process typically involves the following steps:

Finalizing New Lender

The first step is shopping around for lenders with the best interest rates and better terms. A good credit score and favorable repayment track record can help you strike good deals with financial institutions.

Applying for Foreclosure

The next step is applying for a foreclosure. You request your old lender to provide you with a foreclosure letter, no objection certificate, loan repayment record, and property documents required to refinance your loan.

Documents Submission

You must submit the documents you receive from your old lender to the new lender. The new lender will also require you to fill out an application form with them and submit your KYC documents.

New Loan Agreement

Once all the documents are submitted, you and the new lender will execute a fresh loan agreement. The new lender will issue a cheque of the outstanding amount in favor of the old lender signaling the completion of the refinancing process.

You will now have to make EMI payments to the new lender according to the new terms.

Charges

The home loan balance transfer process may also involve some processing fees, though it is weaved in most cases.

Calculation of Home Loan Balance Transfers

Here’s an illustration of how transferring house loans can save your interest cost:

Particulars Existing Loan New Loan
Outstanding Balance 25 lakhs 25 lakhs
Interest rate p.a 9.5% 6.6%
Remaining loan tenure 10 years 10 years
Monthly EMI Payable INR 32,349 INR 28,514
Difference in EMI Payable INR 3,835
 Total Interest Payable INR 13,81,927 INR 9,21,723
Total Savings INR 4,60,204

Tips On Home Loan Balance Transfer Process

A home loan transfer can save your interest costs. However, the process may involve additional charges. Hence, borrowers must do a cost-benefit analysis to check if the process is worth it.

Below are a few tips to help you make the most of your home loan balance transfer process:

Perform Background Check

Always perform a background check on the new lender to determine their credibility. The lower interest rates advertised by lenders may be a short-term gimmick.

Consider Hidden Charges

Refinancing house loans can attract additional fees. For instance, the new lender may charge a processing fee. Other charges may include document fees, lawyer’s costs, and mortgage charges.

So make sure you consider all those charges and choose to transfer a loan only if it’s beneficial.

Fixed Vs. Floating Spread

Some banks offer floating rate loans where both the benchmark and spread are variable. In such cases, you may see your rate rise sharply after a few months.

It is better to opt for a floating rate loan with a fixed spread where interest changes only on a change in the benchmark rate.

Check the Terms and Conditions

It is easy to get swayed by lower interest rates. But one must also check the terms and conditions of the new loan agreement. Make sure you understand the terms and that they are acceptable to you. Also, consider the service quality of your new lender.

Consider the Tenure

Consider the remaining tenure of your loan before refinancing. You must have already cleared most of your interest if you only have a few years left. Refinancing may not be beneficial in such cases.

Final Words

A home loan balance transfer can benefit borrowers in terms of reduced interest costs. However, one must exercise caution to ensure that the process is smooth and profitable.

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M Ateeq