Housing loan balance transfer lets you transfer your ongoing housing loan to another lender with better terms. This can help you save money on interest payments, reduce your monthly instalments, and enjoy other benefits. Let’s explain the process, benefits, and charges of home loan balance transfer and how to calculate the savings.
How Does Transfer of Home Loan Work?
Transferring your loan for land purchase is not very complicated, but it requires some steps and documents. Here is how it works:
- First, you must find a new lender offering a lower interest rate or better features than your current lender. You can compare the interest rates, processing fees, prepayment charges, and other terms and conditions of different lenders online or offline.
- Next, you must apply for a home loan balance transfer with the new lender. You must fill out an application form and provide details such as your name, property type, loan amount, EMI, loan tenure, and lender name.
- After that, you must submit some documents to the new lender. These include identity proof, address proof, passport size photograph, documents relating to the existing loan, last three months’ salary slips, previous three years’ balance sheet, profit and loss account statements (if self-employed), and last six months’ bank statements.
- Once the new lender verifies your documents and eligibility, they will approve your home loan balance transfer and issue a sanction letter. You will also have to pay a processing fee to the new lender, usually a percentage of the loan amount.
- Then, obtain a no-objection certificate (NOC) and a foreclosure letter from your current lender. These documents will state the outstanding loan amount and the consent of the current lender to transfer the loan to the new lender.
- After that, submit these documents to the new lender, who will pay off the outstanding loan amount to the current lender. Your old loan account will then be closed, and you will have to start paying the EMIs to the new lender as per the new loan agreement.
- Finally, hand over the original property documents to the new lender, who will keep them as collateral until you repay the loan.
What are the Benefits of a Home Loan Balance Transfer?
There are many benefits of home loan balance transfer, such as:
- Lower interest rate: The major benefit of a housing finance balance transfer is that you can avail a lower interest rate from the new lender, reducing your interest cost and saving you money in the long run.
- Reduced EMIs: Another benefit of home loan balance transfer is that you can reduce your monthly installments by opting for a lower interest rate or a longer loan tenure from the new lender. This can ease your cash flow and help you manage your finances better. However, you should be careful not to overextend your loan tenure, which will increase your interest cost and reduce your savings.
- Total interest payable is less: Transferring your home loan to a lower interest rate can reduce your total interest payable over the loan tenure. This can help you become debt-free sooner and save money for other goals.
- Opportunity to enhance your loan tenure: Sometimes, you may want to increase your loan tenure to reduce your EMIs or to avail a higher loan amount. In such cases, you can transfer your home loan to a new lender who offers a longer loan tenure than your current lender. This can help you adjust your loan repayment per your income and needs. However, a longer loan tenure will also increase your interest cost and reduce your savings.
- Get top-up at home loan rate: Another benefit of home loan balance transfer is that you can get a top-up loan from the new lender at the same interest rate as your home loan. A top-up finance is an additional loan you can avail of above your ongoing housing loan. You can utilize the funds for any reason, such as home renovation, education, medical expenses, or debt consolidation. A top-up loan is cheaper than a personal or credit card loan, as it has a lower interest rate and a longer repayment period.
- Transfer from fixed to floating interest rate: If you have a home loan with a fixed interest rate, switch to a floating interest rate to take advantage of the market fluctuations and lower interest rates. A floating interest rate is linked to a benchmark rate, such as the repo rate or the MCLR, and changes according to the market conditions. A fixed interest rate, on the other hand, remains steady throughout the loan period, regardless of the market movements. Transferring your home loan to a new lender with a floating interest rate can help you save money on interest payments.
- Opportunity to adapt to bank’s new age technology: Lastly, by transferring your home loan to a new lender, you can also enjoy the benefits of new age technology and features, such as online application, digital verification, instant approval, quick disbursal, online account management, and customer support. These can make your home loan experience more convenient, fast, and hassle-free.
Conclusion
Home loan balance transfer is a helpful feature that can help you save money on interest payments, reduce your EMIs, and enjoy other benefits. However, you should also consider the charges involved in the switch and calculate the savings you can get from the transfer. You should also compare the interest rates, terms and conditions, and features of different lenders. Home loan balance transfer can be smart if done at the right time and with the right lender.
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