A balance transfer is an excellent way to reduce the cost of home loan repayments. It is a facility which allows a borrower to transfer his or her outstanding loan balance from an existing lender to a new lender at a lower interest rate and better terms.
Typically, borrowers who are not satisfied with their current lender for their terms or services opt for a balance transfer. Here, we have discussed how home loan transfers work and some tips to make the most out of it.
Guide to home loan transfer
Here are several steps that one must follow before going for a home loan balance transfer.
- Cost-benefit analysis
A borrower must ensure that he or she can save sizable funds by opting for a balance transfer. The first and foremost criterion of selecting a new lender is to check whether they are offering a lower interest rate than one’s existing one. The more the difference in interest rates, the more will be a borrower’s savings.
It is recommended to subtract all additional charges applicable for a balance transfer including its processing fees, transfer charges and foreclosure charges. This will help to calculate one’s actual savings from a home loan transfer.
Usually, the best time for a balance transfer is during the first few years of loan repayment when the interest component is at its highest.
- Notify the current lender
Post finalising a new lender using a detailed cost-benefit analysis, it is recommended to inform one’s current lender regarding the loan transfer. The existing lender may want to negotiate offering some additional perks to stay with them.
If these benefits and perks are not substantial compared to the savings from a transfer, confirm the loan transfer.
- Collect the NOC
Post confirmation of a home loan transfer, one must collect a No Objection Certificate (NOC) from the existing lender. After receiving the NOC and other additional documents, it is time for the borrower to apply for a balance transfer with a new lender.
- Apply for a balance transfer
The borrower can now apply for a home loan balance transfer with the new lender. To begin the approval process, all the relevant documents are required to be submitted to the new lender.
The new lender’s eligibility for home loan transfer can also possibly differ that the existing one. Therefore a borrower must carefully choose a lender offering the best terms, including lower interest rates and processing fees and shorter/longer tenures.
- Wait till confirmation
Post application, the new lender will then check and verify all previously submitted documents from the previous lender. Once these are successfully verified, the new lender will credit the outstanding loan balance to the borrower’s account or directly to the old lender. In case it is credited to the borrower’s account, then he or she will have to close the loan account with the previous lender.
Now, the borrower can enter into an agreement with the new lender by completing all the necessary formalities. In other words, he/she will have applied for a new home loan with the same outstanding principal amount.
Benefits of home loan balance transfer
Until and unless a home loan balance transfer is beneficial enough, a borrower will not be ready to take it up. Here are some of the core benefits of a home loan balance transfer:
- Lower interest rates: It is the primary reason for a borrower to opt for a balance transfer. Even a small fractional change in percentage can bring a huge difference in the total repayment amount.
- Higher top-up value: A new lender may provide a home loan top-up as an additional benefit for the balance transfer. These are loans given against home loans with a slightly higher interest rate but without end-use restrictions.
- Pre-payment facilities: There is a wrong perception among people that opting for a balance transfer blocks the opportunity of making a prepayment. However, this is not correct, numerous lenders today are allowing their customers to make prepayments and help them to reduce their debt burden.
- Reduction in EMI payments: A low-interest rate means a low repayment value. Therefore, the newly generated amortisation schedule will make it easier to repay the loan. One can use a home loan balance transfer calculator to get a clear picture of actual savings considering the new interest rate and transfer charges.
Several NBFCs or banks provide pre-approved loan offers to their existing customers with different types of loans such as home loans, personal loans, car loans, etc. These offers can speed up the approval process without much hassle. To check out the eligibility, individuals can visit the lender’s website or app and enter a few personal details.
Home loan balance transfer documents required
Listed below are the documents required while applying for a balance transfer:
Home loan documents
- A written statement from one’s existing lender (with a list of property documents held by them)
- Current outstanding loan balance letter (from the existing lender)
- No objection certificate (NOC) (from the existing lender)
Proof of income
- Salary slips (last 3 months)
- Bank statements ( for the last 6 months reflecting salary credits)
- Latest income tax returns and Form-16
KYC documents
- Passport
- PAN card
- Aadhaar card
- Voter ID
- Driving licence
Identity and address proof
- Passport
- Aadhaar card
- Driving licence
- Voter ID card
Borrowers are recommended to opt for a home loan transfer within the first few years of loan repayment. However, in case they have already repaid a significant portion, a balance transfer doesn’t make any sense as the actual savings would be lower than the transfer charges. Anyone looking forward towards a home loan transfer can follow the above steps to reduce their debt burden.