A home loan balance transfer involves the transfer of the outstanding balance of an existing home loan from the current lender to another lender that provides more favourable loan terms and conditions. Most home loan borrowers apply for a home loan balance transfer to benefit from a lower home loan interest rate.
However, some home loan borrowers also opt for this facility to offer the option to change their loan tenure or a top-up loan. Before we get to the benefits of a home loan balance transfer, let us look at a few things to remember to experience a hassle-free home loan balance transfer journey.
Home Loan Balance Transfer: Things to Keep in Mind
If you plan to switch home loan lenders, here are a few things you must remember.
- The new lender you apply to will treat your home loan balance transfer application as a new home loan application. Therefore, they will assess your candidature against their qualifying criteria and approve only if you meet them. So, before applying for a home loan balance transfer, talk to your new lender and apply for a loan only if you meet their qualifying criteria.
- Maintaining a good credit score will undoubtedly work in your favour. So will have a stable income and job. These factors will empower you with high negotiating power, enabling you to negotiate for better loan terms and conditions, such as low home loan interest rates and a higher loan sanction.
- A home loan balance transfer draws a fee. Lenders charge this fee as a percentage of the total principal. Borrowers planning to switch lenders must decide after carefully weighing the pros and cons and only when the savings facilitated by the transfer are big enough to cover the fee and help the borrower save some extra money.
Let us now look at the benefits of a home loan balance transfer.
Home loan balance transfer: Benefits and Factors to Consider
Here are a few ways a home loan balance transfer can prove beneficial.
- Borrowers are smart and usually avail of a home loan after elaborate planning. They almost always take on the responsibility of EMIs they know they would be able to repay quickly. However, life is unpredictable and sometimes goes differently than planned. Sometimes, we are engulfed by situations we do not have any control over. If you are finding it difficult to afford your current home loan EMIs, you can transfer your loan to another lender willing to refinance your home loan at a lower interest rate. This will help you make your EMIs affordable.
- Sometimes, life is kind. Promotions and pay hikes come our way, and when that happens, our ability to repay loan EMIs increases. A pay hike allows us to increase our loan EMIs and become debt-free sooner than anticipated. If you can afford higher EMIs, you can shorten your loan tenure while switching lenders and becoming debt-free quickly.
- Borrowers who want to reduce their EMI burden can also opt for a longer home loan tenure while switching lenders.
- With a home loan balance transfer, borrowers can also avail of a top-up loan on their home loan. The top-up loan money comes with zero end-use restrictions and an extended repayment tenure, which makes repaying this extra loan easy. You can benefit from a top-up loan if you need money for emergencies.
- Lastly, borrowers can also switch lenders if they are tired of their current lender’s service and want to switch to another lender willing to offer better service and known to be more customer-friendly.
Now that we are well-versed in the benefits of a home loan balance transfer let us look at how a low home loan interest rate availed through a home loan balance transfer can prove beneficial.
Low-Interest Rates on Home Loans: How Can They Benefit You?
Regarding home loans, the interest rate one gets offered is very important. The interest rate directly affects the affordability of a loan. Low home loan interest rates help one keep their EMIs affordable and reduce the loan’s cost. Take advantage of the situation if you find another lender willing to offer you a loan at a lower interest rate. A low home loan interest rate will help you lower your EMIs, leaving you with more disposable income that can be used for other purposes.
You can even invest the money for higher returns, especially if your risk appetite is high. If you avail of a lower home loan interest rate but decide against reducing your EMIs, the transfer will benefit you as you can become debt-free sooner and save on the total interest outgo. However, one must be reminded again that a home loan balance transfer must always be performed after a proper cost-benefit analysis and preferably during the initial years of one’s loan tenure when the interest component is still high and, therefore, the likeliness of one saving more is also higher.