All You Need to Know About Home Loan Balance Transfer

If you are struggling to pay off your EMIs on your home loan, then it might be a good idea to consider the pros and cons of a balance transfer loan.

What is a balance transfer loan?

A balance transfer loan is the transfer of your existing loan to another bank or financial institution which offers a lower rate of interest than your existing loan. This can be used to pay off a home loan which has very high interest rates or other unfavorable terms and conditions.

When to choose a balance transfer loan

It is important to choose a balance transfer loan for the right reasons, some of which may be those given below:

You are getting lower interest rates which results in lower Equated Monthly Instalments (EMI)

Paying the foreclosure or prepayment charges on your existing loan still results in considerable savings when compared to the lower interest rates on the new loan

You are getting a top-up loan (usually given in the case of home loans) at attractive interest rates which helps you to meet additional financial expenses for your home construction or purchase or renovation

There are special festival discounts or schemes offered for the balance transfer loan

Your existing lender charges for part-payment or pre-payment while the new lender does not

Your existing lender does not allow part-payment or pre-payment but your new lender does

You get a more flexible or longer tenure with the new lender

When there is a very high outstanding amount on your home loan with a very high interest rate

Your credit score is being affected because of your inability to pay the high EMIs on your existing loan

Benefits of Balance Transfer Loan

When you avail a balance transfer loan, you may enjoy the following benefits:

Increase in savings due to the reduced interest rate resulting in reduced EMIs

Increase in disposable income due to the reduced interest rate resulting in reduced EMIs

For home loan balance transfer with top-up loans, you get additional funds that can be used to meet changing financial requirements connected to your new home

You can get a reduced or increased loan repayment tenure according to your requirements and financial considerations

Points To Consider When Applying For A Balance Transfer Loan

When considering a balance transfer loan, keep the following points in mind before you take the plunge:

Do a comprehensive cost-benefit analysis of the total amount with interest that you will pay with your current lender versus another

Factor in the pre-closure charges of the existing loan

Factor in the processing fees of the new loan

Make sure that the new lender has a track record of efficient and timely customer service

Check if the new interest rate is fixed or floating

If your existing loan is disbursed in tranches (as is the case for loans provided for under-construction property), make sure to transfer the loan when there is not likely to be demand for fund from the builder as it might take 10 to 25 days for the transfer process to be complete, during which your existing lender will not disburse any funds

Once you have taken into account all the factors given above, you can make a well-informed decision about whether to choose a balance transfer loan or not and if you decide to go ahead with it, the right time to do so as well.