Factors to consider before opting for Home Loan Balance Transfer

With such attractive rates on offer, existing borrowers who are servicing home loans at very high interest rates may consider shifting their existing loans to other lenders offering lower rates and/or better terms of service. can. Such borrowers should keep the following factors in mind before opting for a home loan balance transfer option.

Calculate the savings in the total interest cost: a. primary reason for choosing home Loan Balance transfer is meant to reduce the overall interest cost of the loan, typically charged at a very high rate of interest, without impacting one’s liquidity and/or existing investments. The transfer option is especially beneficial for existing borrowers who have become eligible to avail home loans at lower rates due to their better credit profile.

Ratan Choudhary, Head of Home Loans, Paisabazaar.com, said, “Since home loan balance transfer requests are treated as fresh home loan applications by lenders, they incur processing fees, administrative fees and other charges associated with new applications. Thus, those who are considering to opt for the transfer should calculate their total savings in the interest cost by taking into account the charges incurred while transferring the home loan. Opt for the balance transfer option only if the interest cost should be substantial after factoring in the cost involved in doing so.”

Existing borrowers opting for home loan balance transfer can consider the home loan overdraft option when offered by the new lender. Under this option, an overdraft account in the form of savings or current account is opened and linked to the new home loan account. Borrowers can deposit surplus funds in this overdraft account and withdraw from it if required. The balance maintained in the overdraft account is deducted from the outstanding loan amount to calculate the interest on the loan. This reduces the interest cost.

Residual tenure of existing home loan: Opting for home loan balance transfer will not be of much use during the later stages of the loan tenure. Home loan borrowers pay most of their interest during the earlier stages of the loan tenure, leaving little room for interest cost savings through loan transfer in the later stages.

Chowdhary said, “Borrowers should try to keep the repayment period of their new home loan post balance transfer same as the remaining tenure of their existing home loan as opting for longer repayment tenure will result in higher interest cost. Only those Those who wish to reduce their EMI burden should opt for a longer tenure for a fresh loan.”

Re-negotiating interest rates with existing lenders: Since home loan balance transfer is considered a new loan application by the new lender, the borrower has to go through the steps and processes associated with the new application, which include loan appraisal, property appraisal, etc. Since all these steps can involve significant time and effort for borrowers, they should try to renegotiate the ongoing home loan interest rate with the existing lender before making the switch. They should go ahead with the transfer option only if the existing lenders refuse to match the rates offered by other lenders on their outstanding home loans.