Estimated reading time: 14 minutes

A Home Loan Balance Transfer allows borrowers to shift their outstanding home loan balance from one lender to another, typically to secure better interest rates or more favorable loan terms.

This facility can significantly reduce the monthly financial burden and overall interest paid, making it a smart option for those looking to save on their home loans.

---

Current Home Loan Balance Transfer Interest Rates

Banks	Transfer Rates	Current RLLR
SBI	8.5% – 9.65%p.a.	8.50%+CRP
HDFC	8.50% – 9.00%p.a.	18.30% (RPLR)
LIC Housing Finance Limited	8.45% – 8.50% p.a.	16.80% (LHPLR)
Axis Bank	8.75% p.a onwards	6.50% (Repo Rate)
Bank Of Baroda	8.50% p.a.	9.15%
Canara Bank	9.25% p.a onwards	9.25%
Union Bank of India	8.75% p.a. onwards	6.80%
Kotak Mahindra Bank	8.75% p.a. onwards	–
IDFC First Bank	8.85% p.a.	–
Federal Bank	10.15% p.a.	6.50& (Repo Rate)
Karur Vysya Bank	9.48% p.a.	10.75% (Base Rate)

Why Opt for a Balance Transfer?

A Home Loan Balance Transfer can offer multiple benefits:

1. Lower Interest Rates:
   The most compelling reason to switch lenders is to secure a lower interest rate. Even a slight decrease in the rate can lead to significant savings, especially for longer-term loans.
   
   For example, if your current interest rate is 9.25%, shifting to a new lender offering 8.40% could lead to thousands saved in interest over the loan tenure.
   
2. Reduced EMI Payments:
   A balance transfer could result in lower EMI payments due to better interest rates or an extended loan tenure.
   This would help free up cash for other financial goals like investing or saving for your child’s education.
   
3. Extended Tenure:
   Many borrowers opt to extend their loan tenure during a balance transfer, reducing their monthly EMI burden. While this may increase the overall interest paid, it can provide immediate financial relief, which is important for individuals facing a cash crunch.
   
4. Top-Up Loans:
   During a balance transfer, some lenders offer the option of a top-up loan. Also, this additional loan amount can be used for various purposes, including home renovation, education, or even business needs. Top-up loans generally come at competitive rates, making them a preferable option to personal loans.
   
5. Flexible Repayment Terms:
   Borrowers may benefit from more flexible repayment options. Also, some lenders may offer step-up or step-down EMI plans or even bullet repayment options tailored to the borrower’s financial situation.
   
6. Better Service:
   Generally, the motivation to switch lenders comes from the need for better customer service, more transparent policies, or a simplified loan management process.

---

Eligibility Criteria for Home Loan Balance Transfer

Before applying for a home loan balance transfer, borrowers need to ensure they meet the eligibility criteria set by their chosen lender.

Here’s a breakdown of the common eligibility criteria most lenders look for when processing home loan balance transfer applications.

Criteria	Requirements
Age	Most lenders require borrowers to be between 21 and 65 years old at the time of loan application.
Income	Applicants must provide proof of stable income, such as salary slips, Form 16, or bank statements. Self-employed individuals may need to provide financial statements and ITRs for the last two years
Credit Score	A minimum credit score of 700 is typically required. A higher score may qualify borrowers for better interest rates
Repayment	Borrowers must have a clean repayment history on their current loan. Delayed payments, defaults, or overdue amounts may result in rejection.
Loan Tenure	Most lenders will only approve a balance transfer if the borrower has completed at least 12 to 24 months of the original loan tenure.

---

Documents Required for a Balance Transfer

The documentation required for a Home Loan Balance Transfer is similar to that needed for a new home loan application. Below is a list of commonly required documents:

List of documents you will require from your existing lender

Documents	Description
Letter of consent	You need to submit a formal application to your existing lender informing them about the home loan transfer and ask for a consent letter.
No Objection Certificate	A ‘No Objection Certificate’ or an NOC states that your existing lender has no issues transferring your home loan to the new lender.
Foreclosure letter	A foreclosure letter states that your home loan is foreclosed on the stated date with no outstanding balance. It is obtained once the new lender pays your outstanding amount.
Home loan statement	Collect a statement of the home loan displaying your EMI repayment track record, including the outstanding loan amount.
Property documents	You will need to collect your property-related documents from your existing lender.
Post-dated cheques	You must have submitted post-dated cheques while taking the home loan. Make sure to collect the pending cheques.

Documents you need to submit to your new lender:

1. KYC documents

This is for the verification purpose of your identity. You will have to present at least one document from the below-mentioned list:

• Voter’s ID
• Driving license
• Job card issued by NREGA
• Aadhar card
• PAN card (PAN card only as identity proof)

2. Address proof

This is to verify your address details. You will have to present at least one document from the below-mentioned list:

• Passport
• Voter’s ID card
• Driving license
• Aadhar card

3. Financial documents

This is to verify your repayment capacity and income source. You will have to present the following documents:

• Form 16
• Latest salary slips
• Bank statements of salary account for the last six months

4. Property-related documents

This is to verify the purchase of your property. You will have to present the following documents:

• Property purchase documents or documents that prove the ownership of the property
• NOC from your developer/housing society
• Registration, stamp duty payments

5. Documents of your existing home loan

This is to verify your existing loan details and that your lender has no objection in transferring your home loan. You must collect these documents from your existing lender and present them to your new lender:

• Your loan sanction letter or loan agreement with the existing lender
• Approvals from your existing lender (Letter of consent, NOC, Foreclosure letter)
• Home loan statement till date

If all the above-mentioned documents are in place and verified, your balance transfer process will be smooth.

---

A Comprehensive Guide to Applying for a Home Loan Balance Transfer 

Online Method:

Applying for a home loan balance transfer online is a convenient and fast process, allowing borrowers to compare lenders and submit applications without visiting a bank.

Here’s a step-by-step guide:

1. Visit the Lender’s Website: Go to the official website of the bank or Housing Finance Company (HFC) you wish to transfer your home loan to.
   
2. Check Eligibility: Use online tools provided by the lender to check your eligibility based on factors such as your income, existing loan amount, and tenure.
   
3. Fill the Application Form: Complete the digital form with your personal details, loan information, and property-related data.
   
4. Upload Documents: Upload scanned copies of required documents like identity proof, address proof, income proof, and property-related documents.
   
5. Complete e-KYC: Most lenders offer electronic Know Your Customer (e-KYC) processes, making it easier to verify your identity online.
   
6. Application Review: The lender will review your application and the submitted documents.
   
7. Approval and Disbursal: Once your balance transfer is approved, the new lender will pay off your existing loan, and you’ll begin paying EMIs to them.
   

Offline Method:

For borrowers who prefer a more traditional approach, the offline method provides a more personalized experience through physical interactions at bank branches. Here’s how it works:

1. Visit the Nearest Branch: Visit the branch of the bank or HFC you wish to transfer your home loan to.
   
2. Collect the Application Form: Request the home loan balance transfer application form from the branch.
   
3. Submit Documents: Provide copies of necessary documents such as ID proof, address proof, income proof, and property papers along with the completed application form.
   
4. KYC and Verification: Complete the Know Your Customer (KYC) process by submitting physical identity and address proofs.
   
5. Loan Processing: The bank will process your application, verify your submitted documents, and evaluate your eligibility.
   
6. Approval and Disbursal: Once the loan is approved, the new lender will pay off your outstanding balance, and you’ll begin repaying the new lender according to the revised terms.
   

---

Dos and Don’ts While Applying for a Home Loan Balance Transfer

Do’s:

Check Your Credit Score	A good credit score increases your chances of securing a lower interest rate.
Compare Loan Offers	Research various lenders to find the best interest rate and favorable terms before deciding on a balance transfer.
Prepare Documents	Ensure all required documents, such as income proof, property papers, and existing loan statements, are in order.
Maintain Stable Employment	A stable job history helps in securing approval. Avoid changing jobs while your application is being processed.
Evaluate the Savings	Calculate the total savings after considering foreclosure and processing fees to ensure the transfer is financially beneficial
Understand the Terms	Go through the fine print, including clauses on interest rates, tenure, foreclosure charges, and prepayment options.
Choose a Suitable Tenure	Pick a tenure that balances EMI affordability and total interest paid.

Don’ts:

Don’t Borrow More than Necessary	While opting for a top-up loan during a balance transfer, ensure that you’re borrowing only what’s required.
Don’t Miss EMI Payments	Any missed payments can negatively impact your credit score and affect your application.
Don’t Apply to Multiple Lenders	Applying to too many lenders simultaneously can hurt your credit score. Choose one lender at a time after thorough comparison.
Don’t Hide Existing Debts	Lenders can access your financial history, so it’s crucial to disclose any existing loans or liabilities.
Don’t Ignore Foreclosure Fees	Understand the foreclosure charges of your current loan to avoid surprises during the transfer process.
Don’t Rush the Decision	Take your time to evaluate different offers. Rushing the process may lead to unfavorable loan terms or hidden fees.
Don’t Forget to Check Eligibility	Before submitting an application, make sure you meet all the eligibility criteria of the new lender.

---

Who Should Opt for a Home Loan Balance Transfer?

A home loan balance transfer may not be suitable for everyone. Here’s a breakdown of who should consider it:

1. Borrowers with High-Interest Loans: If you are currently paying a high interest rate, even a 0.5% reduction in the rate can lead to significant savings over the loan tenure.
   
2. Borrowers with Long Remaining Tenures: If you have 10 years or more left on your loan tenure, a balance transfer to a lower interest rate can save you a substantial amount of money.
   
3. Borrowers with Improved Credit Scores: If your credit score has significantly improved since you took out the original loan, you may qualify for better terms and lower interest rates with a new lender.
   
4. Individuals Looking for Top-Up Loans: If you need extra funds for home renovation, education, or personal expenses, a balance transfer may provide access to a top-up loan at competitive rates.
   
5. People Facing Financial Constraints: If your EMI payments are too high and you need to reduce them, transferring your loan to a lender offering longer tenures or lower rates can ease the burden.
   
6. Unsatisfied with Current Lender’s Service: If you’re unhappy with your current lender’s service or loan management system, switching to a more customer-friendly bank or HFC can improve your experience.
   
7. Borrowers Who Want Flexible Terms: Some lenders offer flexible repayment options, such as step-up EMIs, which allow borrowers to start with lower payments and gradually increase them as income grows.
   

Process for Home Loan Balance Transfer

The process of transferring a home loan from one lender to another is straightforward but involves multiple steps:

1. Evaluate Your Current Loan: The first step is to thoroughly evaluate your existing loan terms. Review the outstanding balance, current interest rate, EMI amount, and foreclosure charges (if applicable).
   
2. Research New Lenders: Compare offers from various banks and HFCs to identify the lender with the most favorable interest rates, loan tenure, and terms. Keep in mind any additional costs like processing fees.
   
3. Submit Application to New Lender: Once you’ve chosen a new lender, submit your application along with the required documents, including proof of identity, income, and property ownership.
   
4. Approval and Sanction Letter: After the new lender reviews your application, they will issue a sanction letter outlining the terms of the new loan.
   
5. Repayment of Current Loan: The new lender will pay off your outstanding loan balance to your current lender, effectively closing your existing loan account.
   
6. Sign New Loan Agreement: After the loan is transferred, you will sign a new loan agreement with the new lender, detailing the terms of the new loan, including the EMI schedule and interest rate.
   
7. Begin EMI Payments to the New Lender: Finally, you will begin making EMI payments to the new lender under the revised terms.
   

---

Balance Transfer Fees and Charges

While a balance transfer can lead to savings, it’s important to be aware of the associated fees and charges, which can vary depending on the lender and loan terms. Below are some common charges:

1. Foreclosure Charges:
   If you are transferring a loan with a fixed interest rate, the current lender may charge foreclosure fees, which can range from 1% to 4% of the outstanding loan amount. However, there are no foreclosure fees for loans with floating interest rates.
   
2. Processing Fees:
   Most new lenders will charge processing fees when you apply for a balance transfer. These fees can range from 0.5% to 2% of the loan amount, depending on the lender.
   
3. Legal and Valuation Fees:
   Some lenders charge additional fees for property valuation or legal checks. These can be a one-time cost ranging between Rs. 5,000 and Rs. 10,000.
4. Stamp Duty: In some states, stamp duty may apply when transferring property-related loans, though this is uncommon for balance transfers.
   

Before committing to a balance transfer, ensure that the potential savings outweigh these costs.

---

Home Loan Balance Transfer Tax Benefits

A Home Loan Balance Transfer can offer several tax benefits that continue to apply after the loan is transferred. Borrowers can avail of these benefits under the Income Tax Act, 1961, on both the principal and interest components of their loan, provided certain conditions are met:

1. Section 80C – Deduction on Principal Repayment:
   
   • Under Section 80C, borrowers can claim deductions of up to ₹1.5 lakh annually for the principal repayment of a home loan. This benefit applies even after a balance transfer.
   • It is important to note that to retain the benefit, the borrowerHere’s the continuation in Google Docs-friendly markup format, allowing for seamless copy-pasting into your document.
     

---

2. Section 24(b) – Deduction on Interest Paid:
   
   • Home loan borrowers can claim a deduction of up to ₹2 lakh per annum on the interest paid for a self-occupied property. For properties that are rented out, there is no upper limit on the deduction that can be claimed.
   • These deductions remain intact when you transfer your home loan balance to a new lender, making the balance transfer process attractive for those looking to maximize tax savings.
     
3. Section 80EE – Additional Deduction for First-Time Home Buyers:
   
   • Borrowers who took a home loan between April 1, 2016, and March 31, 2017, and whose loan amount does not exceed ₹35 lakh, are eligible for an additional deduction of up to ₹50,000 under Section 80EE. The value of the property should not exceed ₹50 lakh.
     
4. Section 80EEA – Deduction for Affordable Housing:
   
   • This section provides an additional deduction of up to ₹1.5 lakh for the interest paid on home loans for affordable housing. The property’s stamp value should be within ₹45 lakh, and the loan should have been sanctioned between April 1, 2019, and March 31, 2022.
   • This benefit can be claimed even after a balance transfer, provided the loan satisfies the eligibility criteria.
     

---

Conclusion

Opting for a Home Loan Balance Transfer can be a smart financial move for individuals looking to reduce their EMIs, secure better interest rates, or extend their loan tenure. By carefully evaluating the benefits, costs, and tax deductions available, borrowers can maximize their savings and financial flexibility.

For personalized guidance and assistance with your home loan balance transfer, visit Credit Dharma today. Our experts are ready to help you navigate the process and secure the best deal based on your financial needs.

Frequently Asked Questions