The recent cut in repo rate has led many financial institutions to offer home loans at lower interest rates. This has led to a surge in home loan applications. According to NoBroker.com, India has seen a rise of around 25-40% in home loan applications across several cities in 2021.
With such lucrative offers on rates, it is imperative that borrowers servicing a home loan at higher interest rates consider opting for a home loan balance transfer to other lenders offering a better or lower interest rate.
Such borrowers must consider the following five factors before opting for this option:
- Make sure that the remaining repayment tenor is more than 5 years
When thinking about transferring the existing home loan to another lender, borrowers must ensure that the remainder repayment tenor is more than 5 years or just in the initial stages. This is because switching lenders when the remaining repayment term is short will overburden the individual with extra charges. For instance, for such a short period, one will have to pay processing fees and other miscellaneous costs once again. Moreover, a higher repayment tenor helps in availing loans at reduced interest rates.
Thus, if one wants to switch a lender, it must be done as early as possible to churn out maximum benefits.
- Ensure no EMI defaults
Individuals wishing to switch to new lenders providing lower home loan interest rate must ensure that they have not defaulted in their EMI payments. As a matter of fact, lenders are reluctant to entertain individuals who maintain an irregular EMI track record.
When one applies for a loan transfer, the new lender will contact the existing lender to check the borrower’s loan account statement. The lender assesses the account statement and then approves the loan transfer. Therefore, any irregularity in the payment track record can result in application rejection.
One way to ensure no defaults is by calculating the EMIs beforehand. However, manual calculations can lead to incorrect values. To ensure a smooth EMI track record, borrowers can use a home loan calculator. This online tool is extremely convenient to use and provides accurate results on monthly instalments.
- Keep all the documents handy
Since home loans feature a substantial quantum, they entail submitting various documents. These documents play a crucial part. To ensure a hassle-free home loan balance transfer, individuals must ensure that they have all property-related and personal documents handy.
In addition, the borrower will also have to contact their current lender for a statement that will allow the dispatching of all the property documents to the new lender. This step will happen within a specific time. Also, remember that the new lender will keep these documents as collateral until the borrower repays the entire loan amount. Hence, all information regarding this should be communicated with the existing lender.
- Ensure no prepayment penalties
Typically, lenders do not levy foreclosure charges on floating rate loans and fixed-rate loans after completing a specified repayment term.
However, when you proceed with the home loan balance transfer, lenders may charge minimal foreclosure charges. Sometimes, a new lender may also refuse to consider the overall repayment term that an individual has completed. They may just take into account the new loan tenor. That said, you must ensure that there are no foreclosure penalties if you choose to repay the loan before its tenor.
- Renegotiation of the processing fee
A housing loan contains a processing fee that individuals need to pay when taking a loan with a lender. This fee is also applicable when one opts for a balance transfer. However, with proper negotiation and a healthy loan account statement, individuals can get a waiver on this fee.
On the other hand, several reputed lenders do not charge a processing fee when you opt for a balance transfer.
Besides all these, borrowers must also know all about home loan eligibility criteria and choose their lenders wisely. Opting for a reputed financial institution opens the scope of availing lucrative offers. They may include pre-approved offers that help in streamlining the loan application process. These offers are also available across various financial products like loans against property, home loans, etc. You can check your pre-approved offer within seconds by entering a few basic details. Indeed, a home loan balance transfer is a convenient option for borrowers looking for a reduced interest rate. It can drive massive savings for an individual, especially while servicing a high-value loan. However, to derive maximum benefits from this feature, you should keep an eye on all the aspects that can affect the affordability of your home loan.