How To Save More On Home Loan Balance Transfer
Imagine a scenario where you do not have the time to track your finances. One day, on your visit to a lending bank, you find out that the home loan interest rate has risen from 10.50 per cent to 11 per cent. You think of increasing the loan tenure to reduce the increased monthly burden but realise that the principal amount of the loan will not go down despite so many years of repayment. Let this not dishearten you; balance transfer is a tool you may use to improve your situation.
What is balance transfer?
Balance transfer means shifting your running home loan from an existing lender to a new one under certain conditions. Borrowers should opt for balance transfer at least once during the tenure as this lets them re-examine their debt and tweak it according to their requirements. When you go for a balance transfer, after all the necessary checks and due-diligence, your new lender writes a cheque on your behalf to your old lender. After the cheque is cleared and property documents are collected, your debt liability moves to the new lender.
Why go for balance transfer?
- If the interest rates have fallen substantially since you took the loan, you could save on your EMI (equated monthly instalment) amount by opting for a balance transfer.
- When you want to change the terms of your home loan, such as the loan's tenure, and your bank is asking for a hefty fee, you could go for a balance transfer.
- Many banks offer top-up loans on balance transfer. The additional amount may come handy if, for example, you want to make some changes to your apartment.
What are the hitches?
When you are opting for a balance transfer, your existing bank is losing a customer. To stop that, it may impose certain conditions. It may ask you to stick with it for a certain number of months before you exit, else it would slap a penalty (of two to four per cent of the outstanding loan amount) for breaking the loan contract. The processing fee the new lender charges could range from 0.5 per cent to one per cent of the loan amount being transferred. So, before you go for a balance transfer, calculate whether it will be monetarily viable in the long run.
Who is eligible for a balance transfer?
Everyone eligible for a home loan -- whether salaried or self-employed -- is eligible for a balance transfer as well. Your new lender will fund 100 per cent of the principal loan amount, along with other charges mentioned in the foreclosure letter, or 80 per cent of the market value of your property -- whichever is lower. Your eligibility to get a balance transfer is also dependent on several other factors like your age, your qualification, your repayment capacity, your loan repayment track, your creditworthiness, your assets & liabilities and your saving habits. The bank will also check the average monthly balance in your account.
What is the documentation required for balance transfer?
Documents required for a balance transfer are those held by the existing bank, plus a no-objection certificate. A foreclosure letter stating the outstanding amount and the repayment track of your running loan will be needed for credit appraisal by the new lending institution. Apart from that, photocopies of the property documents will be required for technical valuation of the property.
What are the things one must keep in mind?
- Make a thorough calculation and ensure you are saving money while going for a balance transfer
- Make sure your new lender is not offering you a lower rate of interest only to gain initially.
- Keep all your documents in order during the process, to keep the process smooth.
- The prime motive behind a balance transfer should be to reduce the burden of your debt and not to add another one by opting for top-up loans, unless absolutely necessary.
- Do an extensive study of all bank offers and look for the best option. Many banks waive the processing fee under certain conditions.