To revive the home loan sector and help it achieve its growth potential, both the Central Government and RBI have taken certain measures, like keeping the repo rate unchanged at 4%, reducing property rates, etc. This has lowered the cost of buying a property, as no significant changes in the policy rates have kept home loan interest rates affordable.
The availability of affordable housing loan rates has also been advantageous for individuals planning to transfer home loan balance to another lender. However, before getting into it, one should realise whether it is useful or not.
Is home loan balance transfer useful?
Yes, a housing loan balance transfer is useful if done right. Even though the process merely follows transferring the remaining principal loan amount to another financial institution for a lower interest rate. It has other facets too.
Affordable home loan interest rates and better terms can help you to reduce your EMIs with this home loan balance transfer facility. Hence, a balance transfer may seem lucrative as it can be an ideal way to make monthly instalments affordable.
Nonetheless, if you are planning to initiate one, bear in mind a few factors associated with this process before moving ahead.
What are the factors associated with home loan transfer?
Here are some pointers that play a part in housing loan transfer that one should be wary of –
1. Changes in policy rates
Any changes in RBI’s monetary policy directly influences the lending rates across the country. Therefore, whenever the Central bank announces a repo rate revision and loan interest rates goes down, it is the ideal time to refinance your home loan.
Apart from the revision of repo rate, if a lender is extending any better offer than the current one, borrowers can evaluate it and opt for this balance transfer facility, if needed.
2. Calculate the financial benefits
Since financial benefits are what one is aiming at with this facility, it is the foremost thing to consider here. The ideal time to opt for this facility is during the early periods of your home loan, when the interest payment constitutes the lion share of your repayment.
There is no point in refinancing a loan at the end of the repayment tenor, as debtors have already repaid the significant portion of their home loan interest. In this regard, one can use the home loan calculator available on every financial website to calculate and revise their repayment plan to make an informed choice.
3. Costs and terms involved
In most cases, financial institutions levy penalty fees and other pre-payment charges when a borrower decides to transfer home loan balance to another lender. Moreover, these charges generally vary from one lender to another, depending on their terms and conditions. Therefore, choosing this facility every time there is a lower home loan rate available is not advisable, as one has to bear these additional charges as well.
Moreover, individuals can conduct a cost-benefit analysis to check the savings they are making via this process, after deducting these additional charges, and then move forward.
Also, the documentation process becomes tedious as the new lending institution carry out extensive paperwork to avoid repayment default in the future. To expedite the process, make sure to check the lender’s website thoroughly to know which documents are required for a home loan balance transfer, including all the eligibility parameters.
To avoid this hassle, borrowers can also check if pre-approved offers are available on their loans. Most financial institutions provide these offers on multiple financial products, like home loans, loan against property, etc. Borrowers need to submit the name and contact number to check their pre-approved offer.
Home loan balance transfer also comes with additional advantages like a top-up loan facility that allows borrowers to obtain additional funds while refinancing the loan. Moreover, it does not require any additional mortgage and is provided at competitive interest rates. On top of that, the no end-use restrictions feature enables debtors to utilise these funds to cover an array of financial needs, namely, meeting educational expenses, funding travelling expenses, home renovation, etc.
Keeping the above-mentioned factors in mind, you can easily decide the right time to transfer home loan balance to another financier and reap its benefits.