Should you opt for a Home Loan Balance Transfer?

Your home loan is probably one of your biggest financial responsibilities. Now, you may have heard of the concept of a balance transfer to ease out your payments. In this article, we will look at what a home loan balance transfer is and examine whether it makes sense to opt in for it.

What is home loan balance transfer?

A home loan balance transfer is a method of loan refinancing in which you can opt to transfer your home loan from the existing lender to a new lender. This transfer is usually done so that you benefit from lower interest rates or favourable repayment terms.

A home loan balance transfer is like taking a new home loan. The key difference is that only the outstanding amount of your home loan is transferred to the new lender. For instance, let’s say that you have taken a home loan of a total of Rs 80 lakhs. Out of this amount, you have already repaid 20%. Your home loan balance transfer will only be for the remaining amount that is due to be paid and will not include the 20% that you paid off.

The new lender will pay off the outstanding loan amount to the previous lender and close that account for once and all. A new home loan account will be then opened for you with your new lender.

What are the benefits of opting for a loan transfer to another bank?

Lower interest rate

The biggest reason why most people opt for a home loan balance transfer is a lower interest rate. If, by chance, the interest rate falls and there is a lender who is potentially willing to offer a reduced home loan interest rate, then you should consider switching your lender. A lower interest rate translates to a lower EMI and brings the total cost of your home loan down.

Allows you to change your tenure

The tenure of repayment is set before you sign the loan agreement with the lender. It cannot be then modified post that. In case you wish to reduce or extend the tenure of repayment, opting to transfer home loan to another bank can be helpful. When you do the balance transfer, you get a chance to change your tenure period and also negotiate better terms of repayment.

This can be really beneficial for long term loans like home loans. If, however, you feel that you have the financial resources to repay your loan amount in a shorter span of time, you can opt for a home loan transfer to a lender who is offering a shorter tenure.

Option of top-up loans

Top-up loans are those loans that the bank provides over and above your existing home loan. Whether it is meeting unplanned expenses at a wedding or funding your foreign education, a top-up loan comes in handy in all situations. Top-up loans can be availed easily with a home loan balance transfer.

When should you opt for a home loan balance transfer?

Here are some ideal scenarios in which you might want to consider doing a home loan transfer to other bank or lenders:

The initial the period of your tenure

Doing a home loan balance transfer will prove most useful when you have a considerable span of your tenure left ahead of you. This way, you get a longer period to benefit from a lower interest rate with the new lender. Opting for a home loan transfer in the last few years of repayment may not be advisable. Now, you may wonder after how many months home loan can be transferred.

To switch from fixed to floating interest rate

There are two types of interest rates at which home loans can be availed. They are fixed and floating interest rates. A fixed interest rate, like the name suggests is fixed throughout the course of the loan. This rate does not fluctuate with changes in the market. In contrast, a floating interest rate is a rate that depends entirely on the market situation. If you are presently on a fixed interest rate and feel that the floating interest is substantially lower and more favourable, you choose to switch it with a home loan balance transfer.

The practice can work the other way round as well. If you feel that you do not want to take a chance with the changing floating interest rate, you can opt for a fixed interest rate instead.

What are the things to keep in mind when I switch my loan?

Cost of balance transfer

Home balance transfers are not free of cost. You must pay the penalty to the existing lender and take care of the charges by the new lender as well. Moreover, some additional expenses may arise during processing. Make sure that you have enough funds in place to meet these expenses before you opt for a balance transfer. Also, make sure that the money you will end up saving through the balance transfer is more than the value of all these costs.

Processing time

Along with the cost of processing, you must also consider the time that will take it to transfer your home loan to another bank.

Property authorisation

Banks do not offer home loan balance transfers for properties that are under dispute. Therefore, you must ensure that all your property and financial documents are clear and free from any kind of legal dispute which may come in the way of your home loan balance transfer.

Bank of Baroda offers a Home Loan Takeover Scheme for resident and non-resident Indians. Our loans come with low processing charges, affordable interest rates, and many other attractive features. Get in touch today to know more.