10 Factors To Consider While Choosing Home Loan Balance Transfer

We have different needs and financial requirements in life for which we often apply for loans. Among various types of loans offered by banks, a home loan is the most common type. However, sometimes the borrowers discover some hidden charges or the interest rates on their existing loans to be higher, thus increasing their overall cost. In such scenarios, the borrowers start looking for alternative lenders. 

This entire process when a borrower chooses to transfer the home loan balance to a different lender is called the “Home Loan Balance Transfer” process. Sounds good doesn’t it? But as with the saying “Every Coin has Two Sides”, transferring home loan balances can become a “not so good a deal” for you if you don’t understand its nitty gritty. 

In this detailed piece, we will try to address 10 factors to consider while choosing a home loan balance transfer. But, before that, we must understand a few other important things. So, let’s delve into the details. 

What is Meant by a Home Loan Balance Transfer?

Home loan balance transfer or “refinancing” is a service that helps a home loan borrower switch their home loan balance to another bank due to flexible repayment options compared to the parent bank. Other than flexible repayment options, the new bank can provide - 

• Attractive interest rates
• Better repayment facilities
• Improved tenure

Am I Eligible for a Home Loan Balance Transfer?

If you fulfill the following criteria, then yes, you will be eligible for a home loan balance transfer - 

• You are an Indian/NRI citizen
• Your age is between 23 and 65 years
• You are either a salaried or self-employed individual with a consistent income source
• The property is either already inhabited or ready to move
• You have completed at least 12 EMIs or monthly payments with your current lender
• You do not have outstanding payments on your existing loan

How Do I Transfer My Home Loan Balance?

The process of transferring a home loan balance to a new bank from the parent bank is very methodical and easy. The detailed process has been discussed in this section:

• Submit a letter requesting the existing lender for a home balance transfer
• Wait for your existing lender to issue
  • A no objection certificate (NOC)
  • A letter of consent
  • A list of property documents
  • A foreclosure letter
  • A loan statement showcasing your EMI payment history
• Apply for a home loan with the new lender by submitting all the required documents
• Wait for the new lender to verify your eligibility 
• The new lender will pay the principal balance amount to the previous lender through a cheque if you are found eligible for a loan
• Wait until the previous lender hands over your loan papers to the new lender
• The previous lender will cancel all your post-dated cheques with them
• Your home loan balance is successfully transferred to the new bank

Documents Required to Apply for a New Home Loan

After receiving all the documents from the existing lender, you have to apply for a home loan with a new lender. Here is the list of documents you need to apply for a new home loan - 

• A loan application form
• Recent photograph
• Identity proof, signature proof, address proof, and date of birth proof
• Documents that prove your ownership of the property (for which you are taking the loan)
• NOC from your society/builder
• Documents received from the first lender
• Proof of income (last 3 months salary slip and IT returns/last 2 years Form 16)
• A business continuity proof like an appointment letter
• The last 3 months' bank statements

Important Factors to Consider While Choosing a Home Loan Balance Transfer

Listed below are some important factors to consider while choosing a home loan balance transfer - 

1. Interest Rates of Home Loans - While switching to a new home loan lender with attractive benefits can seem catchy, you must try and negotiate with your current lender. If your current lender agrees to a reduced interest rate, it is advisable to stick with the current lender and stay away from all the tedious paperwork.
2. Period of Balance Repayment - Experts advise against switching to a new lender if the current loan tenure is less than 10 years or if you have already paid the interest during the initial years. In such a case, you must only consider switching if the new lender is offering significantly lower interest rates.
3. Tenure - Until and unless you do not want to reduce your EMIs significantly, it is advised that borrowers should not change their tenure. The interest amount payable to the bank is directly proportional to the tenure.
4. Keep Important Documents Handy - Submitting home loan documents with a new lender can be a tedious process. It is thus advised to keep all the relevant documents handy and in order before submitting the home loan application to the new lender. 
5. The credibility of the New Lender - Do not forget to do a comprehensive background check of the new lender. It is an important factor as sometimes borrowers get carried away when presented with lucrative deals.
6. Home Loan Balance Transfer Charges - Transferring home loan balances attracts certain fees. Compare all the hidden charges before opting to refinance the home like processing fees, documentation charges, stamp paper fees and others. 
7. Read the Terms and Conditions Carefully - Getting thorough with the terms and conditions being offered by the new lender is a mandatory task. If the terms and conditions of the new lender are not beneficiary, continue with your current lender. 
8. Customer Service of the Lender - Do not forget to interact with the bank representatives before choosing to transfer a home loan balance. Interact with the customer service representatives of the lender or read online reviews for a fair grasp. Do not overlook the customer query resolution time of the lender. Seek recommendations from friends and family if necessary. 
9. The hassle of a Home Loan Balance Transfer - Sometimes, monetary benefits can seem redundant compared to the hassles of transferring a home loan balance. If the monetary benefits outweigh the physical hassles by a huge margin, then it is a wise decision to switch to a new lender. In case of negligible monetary benefits, one is advised to stay with the current lender.
10. Variable or Fixed Spread - Interest rates on floating-rate loans are divided into benchmark rates and spread above them. Other than a case of loan default, the spread remains constant and the benchmark rates vary. However, sometimes some banks offer floating-rate loans with variable benchmarks and spreads. This results in a sharp increase in loan interest rates after a few months. 

What is a Home Loan Balance Transfer with Top Up?

Certain banks offer an additional top-up amount to lure home loan borrowers from other banks. In this, the lurer bank allows the borrowers to avail of an additional top-up to customers transferring their ongoing home loan balance to manage their extra expenses. Additionally, the borrowers are given other facilities like - 

• Attractive interest rates
• Foreclosure facility
• Minimal documentation
• No restriction on top-up use

Home Loan Balance Transfer Interest Rate/Charges

The table below represents the home loan balance transfer interest rate or home loan balance transfer charges of some of the top Indian banks - 

How Can I Negotiate with the Current Lender for a Reduced Interest Rate?

If you do not want to switch to a new lender but still want to reap the benefits of a reduced interest rate on your home loan, you need to possess negotiation prowess. Here are a few tips on how to negotiate with the current lender for a reduced interest rate - 

1. Do some market research - Before you start negotiating with your current lender, you must do some market research on the best interest rates currently available. You can use the free tools available on the internet to check if you are eligible for a better deal. Good research can give you an upper hand while negotiating with your current lender.
2. Target the right people - Speaking to bank managers or an authoritative figure within the organisation and persuading them with the right approach can help reduce your current interest rate.
3. Play the valuable customer card - If you have been a valuable customer with the bank (current lender) for many years, try to play the “valuable customer” card to get some reductions in the current interest rate.
4. Don’t be afraid to walk away - If the current lender does not reduce the interest rate or reduce it marginally which is not satisfactory for you, do not be afraid to walk away. 

To Conclude

In conclusion, a home loan balance transfer can be a beneficial option for borrowers who wish to reduce their interest rates or avail of better repayment facilities. However, it is crucial to consider all the above factors before making a decision. Keep in mind that the process of transferring home loan balances can be tedious, but it can save you a lot of money in the long run. By keeping these factors in mind and doing thorough research, you can make an informed decision and choose the best lender for your needs.

Related Posts;

• Home Loan Benefits for Ladies
• Understanding Home Loans in India
• Types of Home Loans in India
• How to Get Home Loan without Income Documents?

FAQs

Q: Is a home loan balance transfer beneficial?

A: Yes, a home loan balance transfer is beneficial provided the new lender offers a significantly low interest rate that will reduce the cost of the loan. 

Q: Which bank offers the best home loan balance transfer offers?

A: Banks like HDFC, Bank of Baroda, IDFC First Bank, Federal Bank, etc offer the best home loan balance transfer offers. 

Q: How much interest rate difference should I look at while transferring my home loan balance?

A: While transferring your home loan balance, the minimum balance that you should be looking at is 25 bps.

Author: Abhik Das