A home loan is a long-term financial deal and has a significant impact on our overall economic life. Servicing your home loan will drain a substantial amount of money every month, therefore borrowers are often on the lookout for ways to lower their home loan burden. Whenever a circular arrives from the Reserve Bank of India, about a lowering of repo rate in the market, fixed interest rate borrowers feel inclined towards transferring their home loan balance., which is also the smart decision.
However, should a borrower take the plunge of initiating a home loan balance transfer by simply looking at a lower interest rate? Various factors should be carefully studied before opting for a home loan balance transfer facility. Comparing interest rates across lenders, understanding the benefits of your remaining loan tenor, negotiating with your existing lender, and analysing the service charges are some features to be considered before opting for balance transfer. Home loan interest rates can be compared across lenders using an online home loan transfer calculator to know if the transfer will be beneficial for you or not. Here are a few things to consider before opting for a home loan balance transfer.
Check the Loan Tenor Before Transferring Your Home Loan Balance
Home loan balance transfer will not be ideal if the remaining tenor of your loan is very short, say less than five years. When you opt for transferring your home loan balance to a new lender, you will be charged a processing fee and service fee from both existing as well as the new lender. Therefore, if the loan tenor is at its bottom stage, then it won’t serve more benefits.
Per financial experts, the ideal time to opt for home loan balance transfer is when your home loan is in the initial stages, or under five years of duration. As a rule of thumb, you should consider shifting the home loan if the remaining tenor is above 15 years, and the lender offers at least 25 basis points (bps) less than your current lender. Similarly, if your remaining tenor ranges between 10-15 years, you should consider switching your home loan only if the interest rate difference is above 50 bps.
Keep a Check on Your Credit Score
If you wish to opt for a home loan balance transfer, make sure to maintain your credit score from the time you took your last loan. A poor credit score, anything less than 750 out of 900, is considered bad and will most certainly affect your chances of approval of your home loan balance transfer application. Following discipline, while paying your EMIs is crucial for maintaining a healthy credit score. So, again, keep a check on your credit score.
Consider Resetting Interest Rate with Your Existing Lender
Looking at the tedious process of home loan bank transfer, which involves a lot of paperwork, arranging documents, obtaining NOC, as well as the processing fees and service charges for transferring, considering resetting your interest rate with your existing lender seems like a better option as it will save you a lot of time and money. Many borrowers are not aware of the fact that they can reset their interest rates, and thus never ask their current lender to do so.
Perform Cost-Benefit Analysis
Prevailing lower interest rates in the market can prove to be beneficial for a borrower planning to avail of a home loan balance transfer as it will lower their EMI burden. However, often lower interest rates might be a trap as the lending institution would want to earn profit from their customers, and the borrower might end up paying the same amount or sometimes even more after undergoing all the hassle of the home loan balance transfer process.
Therefore, you should consider the costs of refinancing, such as valuation fees, documentation charges, processing fees, and other service charges, using a home loan balance transfer calculator before making the switch. Only after careful consideration of the terms and conditions of the new lenders for any hidden charges and weighing all the cost measures, you should make the call for a transfer.
Look for Better Deals and Customer Service
After narrowing down on the best lender with the best home loan interest rate, consider other factors as well before finally transferring your home loan balance. Better customer service, nil foreclosure fees, lower penalties, and other favourable terms and conditions are the other factors that
Transferring your balance is a risky and lengthy process. Switching may look attractive but you need to evaluate the long-term savings thoroughly. You need to go through the fine prints of the new lender carefully and then make a final decision. In other words, unless your balance transfer brings long term benefits, you should consider staying with your existing lender.