A home loan is a long-term financial commitment that usually lasts for 20 years or longer. Additionally, paying home loan installments can consume a substantial portion of your income and impact your budget. Naturally, the majority of borrowers are concerned about home loan interest rates. A home loan balance transfer is a service provided by lending institutions that allow the transfer of the total amount of the unpaid home loan balance to a different lending institution for a lower interest rate. Your EMI payments can be made to the new lending institution at a lower rate, with the remaining balance going to the first lending institution. If you have been regular at paying your EMIs on time, almost all lending institutions offer the option of transferring your home loan balance.
Factors To Consider Before You Do A Home Loan Transfer
- Remaining tenure of the home loan: A balance transfer is profitable when your home loan is still in its early years. It doesn’t make sense to pay the transfer fee if your loan tenure is about to end.
- The unpaid loan amount: It makes sense to transfer if you still owe a sizable portion of the home loan, and you can get a better interest rate with a new lending institution. However, since unpaid loans only make up 5 to 10% of the total, switching your home loan won’t be wise.
- Overall reduced costs: Most borrowers only consider the lower interest rate when transferring their loan. You should know that switching your home loan to a new lending institution will cost money. Before examining the benefits associated with the loan transfer, think about the overall cost of doing so. You can use the home loan transfer facility if the benefits outweigh the costs.
Benefits Of A Home Loan Balance Transfer
- Lower rate of interest: The most frequent justification for transferring a home loan is a lower interest rate. You should consider it if another lending institution offers a lower interest rate than your current one. The total amount you pay can vary by as little as 0.5 percent annually in interest rates. Additionally, it aids in easing the EMI burden each month. Home loan interest rates today make home loan balance transfers more frequent.
- Smaller EMIs: If you get the option of smaller EMIs in any other loan, you should consider transferring your home loan balance. It will ease the monthly financial burden on you.
- Longer tenure: Consider a home loan balance transfer when you still have a longer loan term. With a longer loan term, you can save as much money as possible at a lower interest rate. Transferring a loan as the loan is ending is not a wise decision. Even though you might save some interest by refinancing a home loan with only a few years left on the term, you might end up paying more for the transfer fees.
- Top-up loan: Home loan balance transfers also offer the significant advantage of allowing borrowers to receive an additional sum in addition to their current loan. The top-up loan facility is the name given to this additional sum. The maximum amount of a top-up loan is typically 25 percent of the balance you are transferring. It can be obtained with a lower interest rate and used for any personal objective, including home improvements, children’s education, etc.
- Pre-payment facility: Part-prepayment enables you to pay a portion of your outstanding loan principal. This facility lowers your EMI or reduces the tenure. Part-prepaying your loan also helps you to save on interest. Your current lending institution may not allow part-prepayment or even levy high part-payment charges. Hence, you can transfer your home loan balance to another lending institution offering this facility.
- Customer service and other facilities: Most people transfer their home loan balance to obtain better features like lower penalties, no foreclosure fee, or better customer service. You might switch to a lending institution that offers more favorable terms and conditions if you currently have a home loan but feel that your lender’s service standards are subpar.
The decision to do a home loan balance transfer can be fruitful and economical for the borrower. But remember that it is essential to consider all the above factors very carefully before making a decision.