By the first two weeks of June 2020, the value of housing loans in India increased by 6.2%. One of the reasons behind the same can be due to the financial institution’s response to RBI’s decision to slash the repo rate by 40 bps. Such a decision benefits especially home loan borrowers as these are high-value loans repayable over a long tenor. As an effect of repo rate cuts, lenders bring down the rate of interest levied on new and existing home loans as well.
Borrowers who intend to further lower the interest burden on their existing housing loan can opt for a home loan balance transfer and make the most of the reduction on loan rates. Though such a feature is an effective way to make loan repayments more affordable, there are still a few factors which must be considered beforehand.
Things to check about balance transfer
To make the most of a balance transfer, one needs to become familiar with these following.
1- Interest rates provided by the new lender
The primary reason why most borrowers opt for a loan balance transfer is to lower their existing loan interest burden. However, to achieve the same individuals must choose a lender who would levy a lower rate of interest on the existing loan amount than most others. Doing so, borrowers will be able to reduce their loan EMIs effectively and repay the advance conveniently.
2- Charges involved
Next, individuals must make it a point to find out about the charges associated with a home loan balance transfer. For instance, gaining a fair idea about the processing fee, application fee, administration fee, and inspection fee, among others, would help to make a more informed decision.
Other than these, existing lenders often levy charges like prepayment fee, penalty, etc. to approve loan transfer. It is recommended to avoid balance transfer if the expenses involved exceed their current rate of interest as it defeats the entire purpose of choosing a home loan balance transfer. Borrowers can use a home loan balance transfer calculator to estimate the charges involved more accurately.
3- Time of balance transfer
Timing is essential when it comes to deciding the effectiveness of a prompt balance transfer. Typically, borrowers who are almost at the end of their home loan tenure should refrain from availing this feature. It is because all the charges and processing fees involved with such a transfer may prove more expensive than that transfer. Likewise, individuals who plan on selling their house soon should also refrain from the same.
4- Credit score and associated eligibility
Individuals must make it a point to find out if their current credit score makes them eligible for a home loan balance transfer or not. Similarly, they should also find out the eligibility criteria laid down by the new lending institution before applying for the same. For instance, leading financial institutions consider applicants with these following features eligible for a balance transfer.
- Whose property has been occupied or is ready to be occupied.
- At least 12 EMIs on their existing loan have been paid.
- There are no existing dues on their loan.
Such financial institutions also provide their customers with pre-approved offers to make their experience of availing financial aid smooth and time-saving. Such offers accompany multiple financial products as well, like home loans and loans against property. Check your pre-approved offer in a few seconds by entering your name and contact number.
5- Terms and conditions
Individuals should also make it a point to find out the terms and conditions that accompany a balance transfer facility. It will help them become aware of what to expect in case of a balance transfer in terms of charges and features like top up loan facilities, among others. Subsequently, individuals should find out all they need to know about the top loan to streamline the process.
For instance, they must enquire about the steps of application and documents required. In most KYC documents, income proof, address proof, and passport size photographs are deemed necessary to apply for a top-up loan on an existing loan.
Regardless, before finding out these things, borrowers should discuss with their existing lender and negotiate a lower rate of interest, and if possible, a more convenient repayment option. It will save them the hassle of finding a new lender for a home loan balance transfer. It will also help them to secure attractive benefits from the current lender if they decide to get their home loan refinanced and will further allow them to manage their loan effectively.