For taking a home loan we always try to find the best deal with the lowest interest rate and other benefits. However, after opting for a home loan you realise that your bank is charging a high-interest rate then you can transfer your loan to another bank. Home Loan Balance Transfer is a process of transferring your home loan to a new lender of your choice for lower interest rates, top-up loans, etc.
The reduction in the interest will lower your EMI and reduce your monthly financial burden.
Important Things to Consider Before Applying for Home Loan Balance Transfer
1. Check the Authenticity of the Lender’s Offer
If the new lender is making claims to offer you a lower interest rate, then it is important to find more about their interest track record. At times some lenders make such teaser claims to lure the clients. In the initial years the interest is low but then suddenly it increases as the rates automatically switch to floating rate. Make sure the new lender is authentic and the rate offered by them is genuine.
2. Find out about the Foreclosure Charges
Check if your existing bank/lender charges any foreclosure fee or not. Most banks do not charge any foreclosure fee to individual borrowers (unlike companies). However, some banks/lenders may charge a fee, ranging between 2% to 6% of the outstanding amount.
3. Avoid Loans with Variable Spread Rate
The interest rate on home loans comprises of two parts: Benchmark/Base Rate and Spread Rate. The benchmark rate is the rate below which the bank cannot lend. The spread rate is a margin rate based on customer and product-specific factors.
While the benchmark rate is expected to change over the course of time, the spread rate should stay constant. However, some banks offer a loan with a floating rate in which both the base rate and spread rate can change. In many of such loans, the loan interest rises sharply after a few months/years.
4. Investigate about the service quality of the New Bank/ Lender
It is really important to get an idea of the service quality of the new lender. The new lender’s services must be good and should live up to your expectations. So one must avoid loans in which the spread rate is variable and can change in the course of time.
5. Check loan eligibility of your new lender
The cost of any property/ house generally consists of multiple heads. These heads include the base price, security deposit, stamp duty, registration charges, etc.
Which heads to include and which to exclude, depend totally on the lenders. If the new bank does not include the multiple heads in the property’s cost as included by your existing lender, your loan eligibility may go down.
Banks/NBFCs in which you can apply for a Home Loan Balance Transfer?
You can transfer your existing home loan to any of the following bank/ NBFC to reap benefits:
- HDFC Bank
- ICICI Bank
- Axis Bank
- Kotak Mahindra Bank
- Yes Bank
- Standard Chartered Bank
- Deutsche Bank
- IndusInd Bank
- Tata Capital
- PNB Housing Finance (PNBHFL)
- LIC Housing Finance (LIC HFL)
- Aditya Birla Group
Benefits of Home Loan Balance Transfer
Home loan balance transfer has an array of benefits:
- Lower Rate of Interest
- Lower EMI
- Easy Top Up Loan
- Reduction of Loan Tenure
When to Opt for a Balance Transfer on your Home Loan?
Time really matters when it comes to the application for a home loan balance transfer. The transfer yields maximum benefits when done at the right time. The more time you have left for repayment the better it is. The ideal time for home loan balance transfer is within 10-12 years of repayment. Avoid transferring the loan at the far end of the tenure. In case you do it after paying EMIs for 15 years or so, the savings will not be much due to less time.
What are the documents required for Balance Transfer?
The process of home loan transfer requires the following documents:
- Balance transfer form
- Proof of the house ownership
- Bank statement of Last 6 months
- Salary slip of last 2 years in the case of salaried individuals
- Copy of your IT Returns of last 2 years
- Form 16
Step by Step process of Home Loan Balance Transfer
Step 1: Identify the Requirements
It is very important to identify why you are applying for the home loan balance transfer. Is it because of the high-interest rate and EMI or because you want a top-up loan for your home renovation? Once you know your goal, it will be easier for you to negotiate with the new lender. Also, you should take into consideration the amount of repayment time left, the more the better.
Step 2: Analyse the Cost
A lucrative offer with a lower interest rate should not be the only thing to consider when opting for a home loan balance transfer. Few other important things you should consider:
- Foreclosure Charges of your existing Bank.
- Amount that you will be able to save based on the tenure.
- Make sure that the spread interest rate offered by the new lender is constant.
Step 3: Get all the necessary Documents from the Existing Lender
Documents of your existing loan along with an NOC, foreclosure letter, and your payment history need to be collected from your existing bank/lender.
Step 4: Apply for Balance transfer in the New Bank
Fill the application form and submit all the required documents along with the documents from your existing lender.
Step 5: Transfer Approved
After going through all your documents, the new lender will approve your balance transfer if your case is strong. Generally, banks look for the individual’s credit history, repayment capacity, etc. It takes approximately a fortnight’s time for a bank to process the home loan balance transfer.