Getting a home loan is a huge, long-term deal. You’re signing up to send a chunk of your monthly paycheck on EMIs for 20 to 30 years. Even if those payments aren’t denting your budget too much, the whole thing can get stressful down the line. So, how do you cut down the stress? Well, financial experts suggest fighting for a lower home loan interest rate. Feeling stuck, making home loan repayments at a rate that’s higher than the going rate? Think about a home loan balance transfer. Simply put, it lets you shift your leftover loan to a lender who’ll charge you less interest.
A low home loan interest rate helps keep EMIs affordable and reduces the total interest paid over the loan period. Some borrowers, in their hurry to finalize the home loan, accept the first loan offer from the first lender without exploring other options. This lack of research and time can lead to paying a much higher interest rate than necessary.
This smart move can save you some bucks and lighten your home loan’s weight in the long haul. But before rushing into anything give a look at the pros and cons of Home loan balance transfer.
What is a home loan balance transfer?
Transferring your house loan balance from one bank to another in search of a better offer is known as a home loan balance transfer. You can transfer your house loan to a different bank if you are making monthly payments on it. If the interest rate offered by the rival bank is lower, this can occur. It’s similar to moving your loan to a different location where your monthly payment may be lower. It’s comparable to locating a more favorable house loan arrangement.
In the long run, this may result in lower monthly payments (EMIs) and potential savings. If the new agreement is better than what you already have, it could be like discovering a way to gradually pay less for your house. It does involve some paperwork and may incur some expenditures.
6 reasons you should transfer a home loan
Reduced Interest Rates
Its reduced interest rates are the main lure for the majority of customers. You will pay a lower EMI when the interest rate becomes low, which makes repayment more feasible. It also lowers the total cost of borrowing for you.
Because house loans typically have long terms, you can find a lender who would give you a better interest rate than the one you currently have. A balance transfer can be a good choice in such a circumstance.
To make sure you are truly benefiting from a low interest rate and to understand the math behind it, utilize our home loan balance transfer calculator to quickly compare rates.
Fixed and Floating Interest Rates
There are two sorts of interest rates for home loans: fixed and floating. You will pay the same interest for the duration of a fixed-interest home loan. On the other hand, floating interest rates are dependent on various factors like inflation, repo rate, market conditions, and other factors.
In order to go from fixed to floating interest, or vice versa, you can opt for a balance transfer. Let’s take an example where you have a fixed interest rate but the market interest rate currently is going down. Now you can decide to switch to a floating interest rate.
If the floating rates increase you can also switch to fixed rates with a home loan balance transfer. In doing this, you can minimize your home loan’s borrowing expenses while sticking to an affordable repayment plan.
Longer Tenure
Your financial obligations could grow over time, making it difficult for you to make EMI payments on time. You can lower the amount of your monthly installments if you wish to reevaluate and extend the tenure of your loan.
This is yet another important feature that increases the appeal of a house loan balance transfer. Let’s take an example where you have a 10-year home loan remaining. But now you have other responsibilities, including your kids’ schooling, your health, and other expenses.You might want a home loan transfer in this case to increase the tenure by an additional 15 or 20 years. In such a way, you can reduce your EMI and allocate your money to other obligations.
Credit Score Improvement
Your credit score is largely determined by how well you repay debts. Therefore, your credit score may be suffering if you are having difficulty repaying the loan and have been frequently missing your EMI payments. In these situations, a home loan balance transfer might be the best option.
You can choose a lender with conditions that are suitable for you with a reasonable repayment plan. Making your loan payments on time will help you maintain and boost your credit score, which will guarantee that you can always get credit at an affordable rate.
Top Up Loan Facility
You may seek for an additional loan from your new lender by using a top-up during a balance transfer. You can receive additional funds with this facility to cover your needs. Further, lenders provide this facility at competitive interest rates, which makes it a feasible and affordable choice. But be sure to take into account additional costs and fees that can be associated with your top-up loan.
Better Customer Service
You could opt for a home loan balance transfer to also get better customer service in addition to financial benefits. For example, you might find it challenging to make repayments if the customer support provided by your present lender is confusing or unhelpful.
In these circumstances, a house loan balance transfer could be advantageous for you. Check feedback from customers, talk to experts and do some research on the new lender before choosing the bank, though. Make sure that the team at your new lender is more mindful and offers better service than the one you currently have.
How to Use a Balance Transfer to Lower Your Home Loan EMI?
Transferring your house loan from one bank to another is similar to a balance transfer. How to Reduce Your Home Loan EMI with a Balance Transfer? In fact, on occasion, competing banks provide superior deals like cheaper interest rates.
The primary objective is to reduce your monthly expenses. Smaller EMIs may result if another bank offers an interest rate that is less than what you are now paying.
- Check Your Current Loan: Understand the specifics of your current home loan. It comprises the amount of your outstanding loan balance, the remaining duration (the number of years you have to pay), and your current interest rate.
- Shop Around: Examine the offerings from different banks. See if any banks are offering a reduced interest rate. It can be the result of market shifts or the improvement in your credit score.
- Do the Calculation: Determine the possible savings from the transfer. While there may be some transfer expenses, lower interest rates typically translate into reduced EMIs. Verify whether the anticipated savings offset these expenses that is home loan balance transfer calculator.
- Learn about Process: There is some paperwork and some procedures involved in moving a home loan balance transfer process.
- Negotiate with Your Current Bank: See your present bank before taking any action. Inform them that you are considering moving to another location because the offer is greater. In an attempt to retain you as a client, they may occasionally give you a better deal.
- Make the Transfer: After comparing the figures, proceed with the transfer if the new offer is better. After the new bank repays your previous loan at a new, ideally lower interest rate, you owe them the money and then start paying lower EMIs.
What is the process for a Home Loan Balance Transfer?
Here are the steps to transfer a home loan balance are:
- Close the account with your current bank: You must obtain approval from your current lender by submitting a letter requesting a transfer of your home loan before beginning the Balance Transfer process. After verification, you will receive the loan statement with the outstanding balance on it and a No Objection Certificate (NOC).
- Provide NOC to the new lender: Give the NOC (No Objection Certificate) to your new lender in order to have the loan amount approved.
- Document transfer: Your property records will be given to the new lender after the deal is finalized. The remaining postdated checks have been canceled. Additionally, be sure that no document is left un-transferred.
Drawbacks that come with Balance Transfer
Even while it may be beneficial, transferring a home loan has its own set of disadvantages and things to take into account. Here are some drawbacks to consider:
- Impact on Credit score: Transferring your home loan to a new lender, could slightly lower your credit score. This change is often short-lived. It’s good to know your score might decrease a bit while this happens.
- Waiting for loan approval: You will have to go through the entire loan approval procedure again if you decide to transfer your home loan. It implies that the new bank will examine your credit history and all of your legal paperwork. Your loan request might not be approved and be denied if you don’t meet their standards. It resembles applying for a loan from the new bank all over again.
- Fees and overall charges: Recall that the primary motivation behind taking out the balance transfer loan is to reduce expenses. Estimate the entire sum of fees that you shall be required to pay the new lender. When there is money left over, even after all expenses are covered, you have truly saved money.
Conclusion
In conclusion, choosing to transfer your home loan may be a wise financial decision that will increase your total financial flexibility and result in cost savings. Make sure that a house loan balance transfer is in line with your larger financial objectives by carefully considering the advantages and disadvantages as well as the possible savings.
Recognize the reasons for your refinancing. Are you searching for a loan with greater flexibility or one with a longer or shorter term? Are you trying to get the equity to the increased value of the property?
Before making the final transition, weigh all the costs and variables and perform a cost-benefit analysis. Negotiating with your existing lender is always an option, though, before proceeding with a refinance. You’ll save a lot of money and time if the lender approves.
FAQs
Why would I consider a balance transfer?
Most people think about transferring their amount to make monthly payments less. Your monthly payments (EMIs) may decrease if another bank offers a cheaper interest rate, putting more money in your pocket.
Can I negotiate with my current bank before transferring?
Of course! Speak with your existing bank before making any decisions. Tell them you’re considering moving since there’s a better offer. To keep you as a customer, they might provide you with a better deal.
Will I have to go through the loan approval process again?
Indeed, having your house loan transferred requires reapplying for approval. Just like the last bank you used to get a loan, the new bank will review your documentation and credit history.
What are the costs involved in a balance transfer?
There are fees associated with transferring your house loan, like processing fees and other charges. It is imperative to take into account these upfront costs since they can affect your savings.
How do I know if I’m eligible for a balance transfer?
Your financial status and credit history will be examined by the new bank. Your loan request might not be approved if you don’t meet their conditions.
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