When it comes to housing finance, the importance of securing the lowest and latest home loan interest rates cannot be reiterated enough.
Securing housing finance at low interest rates will help you pay your home loan through easy-to-afford home loan EMIs, without feeling burdened or defaulting on loan repayment.
A low rate of interest also helps secure a high return on investments through reduced interest payout on the loan and reduced cost of borrowing money.
Unfortunately, sometimes circumstances are such that securing a low rate of interest on one’s home loan becomes difficult. Maybe your CIBIL score wasn’t in the ideal range when you applied for a home loan.
Maybe you had other loans that you were repaying and therefore, had a high debt-to-income ratio, which stopped you from establishing candidature for the lowest interest rate you could get.
Maybe you had an unstable job and income, which made your lender doubt your repayment capacity and extend you a home loan at high home loan interest rates.
However, if you are currently paying a home loan at a very high rate of interest and have good reason to believe that you are eligible for lower latest home loan interest rates, you can consider availing yourself of the home loan balance transfer facility.
In this article, we talk about this facility, its features and home loan transfer charges.
What is a Home Loan Balance Transfer?
Most lenders these days allow home loan borrowers to transfer the remaining balance on their home loan to another lender offering better loan terms and conditions, such as a lower interest rate or a longer repayment tenor to ensure ease of loan repayment.
Sometimes, people opt for the home loan balance transfer facility simply to benefit from better service. When an individual opts for a home loan balance transfer, the lender they are applying to clears the outstanding loan amount with the loan applicant’s current lender. Only after this is done is the home loan transfer considered complete.
By switching to a lower mortgage loan interest rate, you can save significantly on your total interest payout. Further, transferring your loan to another lender may also make the process of loan repayment completely hassle-free for you.
However, this facility is not extended to every home loan applicant — only those who meet eligibility for home loan transfer can apply. Further, home loan balance transfers involve different charges and therefore, one must decide to opt for this facility only after doing a thorough cost-benefit analysis.
In the next section of this article, we discuss home loan transfer charges. So, read on.
Home Loan Transfer Charges
When you opt for a home loan balance transfer, there are essentially two major charges involved: home loan transfer charges and the penalty you will have to pay your current lender for foreclosing your loan.
If you are on floating interest rates, as per the latest RBI rules, your lender cannot charge you a penalty. However, if you are at a fixed rate of interest, your lender will apply a foreclosure penalty.
For fixed-interest rate home loans, the foreclosure penalty can go as high as 4% of the pending home loan amount or the amount yet to be repaid by the loan borrower.
If you decide to opt for a home loan balance transfer, you will have to collect all the home loan documents you had submitted to your current lender at the time of applying for the loan along with a NOC from them and make a home loan balance transfer application to your new lender.
The new lender will consider your loan application as a new home loan application and apply a home loan balance transfer fee. The home loan transfer charges range from 0.25% to 2% of the total loan amount that you plan to transfer to your new lender.
Thus, for individuals on fixed interest rates, a home loan balance transfer can lead to the accumulation of various costs and charges that may easily become much higher than the savings facilitated by the home loan transfer.
Therefore, borrowers on fixed interest rates must opt for a home loan balance transfer only when there is a considerable difference in the old and new home loan interest rates.
Whether you are on fixed interest rates or floating interest rates, you must use a home loan balance transfer calculator to calculate whether a home loan transfer would indeed be the right choice for you.
Further, if you are planning to go for a home loan transfer, know that you can avail yourself of a home loan top-up when you avail of this facility.
This low-interest-rate top-up loan will come with zero end-use restrictions and you can use the loan money however you like. So, make the best use of this option available to you.