Whenever we have to buy our dream home or a plot for construction, one thing that we all normally think of is, taking a home loan. As taking home will make buying your dream home procedure easier. But while paying your home loans EMI you might have comes across a better home loan with a lower rate of interest and other value-added services. In such cases, every buyer wants to switch his home loan to the new lender offering a lower rate of interest. Switching or transferring your home loans from one lender to another is known as Home loan transfer or Home loan balance transfer and technically it is called takeover of the loan.
Now comes, the question of when one should go for a home loan balance transfer?
There can be various reasons for you to seek a transfer but the most common reason would be when you are paying a higher rate of interest. Home loans do have a high principal amount and a long tenor. So as a borrower interest rate of the loan is a really a matter of concern. In fact, even a small variation in the interest rate can affect your outflow considerably. So if you find that your home loan lender is not offering you the best rate of interest then you can think of switching to a home loan lender.
Other reasons could be like too many additional charges, rigid terms, and conditions or poor customer service. In short when the terms of your current lender seem unfavorable to you and the lender is not willing to negotiate even.
If you have seriously decided to transfer your home loan balance then its best if you do it in the early years of your tenor, cause the interesting part of each EMI is much higher than the principal part in the beginning. So this would be the best time to get the benefits of the drop in the interest rate. If you wish to transfer the home loan balance then you might have to pay some charge to carry that transfer and also have to pay the processing fees again to the new lender. However, in some cases, home Loan balance transfers might not be profitable
Some Benefits of Home loan balance transfer are.
- Lower interest rate / Lower EMI.
- You will get better customer service.
- New Lender may offer you other benefits like easy prepayment and foreclosure at zero additional charges.
- You can get a top-up loan as an additional perk that can be used the home to furnish your home.
banks and other finance companies are offering lower interest rates just to gain their business or can say to increase their business. But its only you, as a borrower need to think in depth before moving your home loan balance from one lender to other.
Points to consider before transferring your Loan balance.
Calculate the Cash Outflow
New lender would try to attract you by lowering your monthly EMI and giving you a longer duration to repay( in short increasing your tenure ), you should be clear that this facility will increase the total amount you have to pay to the bank, cause interest will keep on adding to the outstanding loan amount. So if you are paying higher EMI with your current lender then compare the total amount to be paid for both the lenders and then take any decision. If you are not being financially drained then you should stick with the current lender and try to pay higher EMI and finish off your loan as soon as possible, as this will save the money you would overpay by choosing longer tenure.
Consider the processing fees and other associated charges
Your new lender may charge you the processing fee, legal charges, valuation fee, stamp duty, technical charges, and other related charges. So you have to calculate would it be a total loss or profit.
Few banks charge 1 percent of the total loan amount as a processing fee, while other banks choice depends whether you are a businessman or a salaried employee. In some cases, your existing bank may ask for some cost for the closure of accounts if it finds out that yours is a case of the takeover.
Check on penalty clause
Before transferring you should also check the home loan agreement at this point because your bank might have applied penal charges clauses in case of loan balance transfer. This charge is generally higher in initial years, so make sure that the penalty is worth the benefits that going for a transfer.
All the terms and conditions
Before signing the documents, you should thoroughly read all the terms and conditions of both the banks. Some banks may offer an additional financial product like life insurance along with home loan balance transfer. Most of the times, the executives may even say that this is mandatory, which is not at all true. It’s totally up to you whether you want to opt for the additional product or not. Some banks may ask you to open a saving account for self as well as for the family.
Last but not the least.
Do not just go for an interest rate that is slightly better or can say only marginally better. After all these banks are into the business of lending, so why would one want to give you loans on a lower interest and lose its profit.
The procedure of Transferring Home Loan Balance.
Submit an Application to Your Current Lender:
First, you have to submit an application to your current Lender letting him know that you want a transfer and reason for that transfer.
Collect the NOC
Once you are done with this formality, your lender will issue a NOC (No Objection Certificate) as this document is required by your new lender.
Hand Over your documents:
After receiving the NOC, you have to submit all the documents like NOC, KYC along with the copy of your property papers, loan balance statement, application form and interest statement to your new lender.
Get Confirmation from The Old Lender:
Wait for final confirmation from your old lender and once you are done this will certifies that your loan contract has ended with them.
Pay all the dues and Start once again
Next step is that you have to sign a contract with the new lender, pay all the processing due and from next month you can pay your EMI to new lender and enjoy all the benefits like affordability and flexibility that your new lender has to offers.