Are you eyeing your potential dream house but high interest rates and the fear of getting trapped dampening your hopes? Getting a home loan is one of the most important financial decisions you’ll make in your life. Therefore, choosing the correct financial service provider that is compatible with your personal financial goals becomes imperative.
Home loans make one feel stuck in a trap and a constant cycle of hefty repayments and instalments. However, there’s a way out! Home loan balance transfer gives the customer a chance to drastically cut down on loan costs over their tenure by transferring their outstanding balance from their current lender to a new one that provides better conditions or a lower interest rate.
Why opt for a balance transfer?
- Lower interest rates – A customer can potentially save a significant amount of money by switching to a lender with lower interest rates.
- Reduced EMI rates – Lower rates of interest mean much more affordable EMIs
- Option of top-up loans – Some options even provide the facility of adding a top-up loan on the balance transfer for customers who need extra funds for other expenses like home renovations.
- Better customer service – If the current lender’s services are unsatisfactory, customers can transfer the outstanding balance and shift to a more reliable bank.
Eligibility for a balance transfer
- The customer must have a good loan repayment history.
- There’s usually a minimum repayment period of one to two years with the original lender and one can only transfer afterwards to another lender.
- Good credit score and financial stability are vital when applying for approval.
How it works step-by-step
To understand how it works, let’s explore and debunk the fundamental steps.
- Researching lenders and comparing offers to determine the ideal one with the best rate of interest and terms by evaluating factors like processing fees etc.
- Receiving a “No Objection Certificate” or NOC from your original lender.
- Applying to new lenders for approval of home loan balance transfer requests with the necessary documentation like KYC, loan statements, and property papers.
- Loan approval and sanction – once the process goes through, the chosen new lender pays off the outstanding balance to the original lender. The customer then begins repaying the loan under the newly agreed terms.
Refinancing v/s Balance Transfer – Understand the Difference
A home loan balance transfer involves shifting your existing outstanding balance to a different lender that’s offering lower interest rates or better terms. The party concerned pays off the outstanding balance to the original lender once the application is approved by the new lender.
You start repaying your loan instalments to the new lender under the newly agreed terms. The primary aim of it is to achieve lower interest rates or better features like more flexible repayment options or improved service.
Home refinancing refers to taking out a new loan from the same or a different lender to replace your existing loan to achieve better terms or a longer repayment period. Refinancing can be used for taking advantage of but not be limited to getting better interest rates and EMIs as it can be used to extend the tenure, revamp the loan structure and shift from fixed to floating rate or vice versa.
While one is used to reduce the burden of EMI instalments, the other helps you consolidate debts and change your repayment tenure if your financial status has changed significantly since taking out the original loan. Choose the right one according to what you aim to achieve.
Tips to make the balance transfer process smooth and efficient
- Keep the original loan documents, income proof, property papers, KYC details, home loan statement, and the NOC ready and handy.
- Be aware of the costs involved like the cost of processing, prepayment penalties, legal processing fees, property valuation fees, etc.
- Stay updated and mindful of the time required for documentation and approval as it can be stretched out.
- Ensure you maintain a healthy credit score as it can be negatively impacted by late or missing EMIs.
- Review the loan terms of the new agreement before approval.
So keep these in mind while applying and do your research before agreeing or complying to any loan terms.
