Applying for a home loan is a big financial decision. When you avail of the loan, you essentially take on the big responsibility of spending a significant portion of your income towards making EMI (equated monthly instalment) payments throughout the loan tenure, which could potentially last for 15 to 30 years.
Even if you earmark the EMI payments in your monthly budget, these payments can cause financial stress down the line. So, how do you relieve this stress? One of the best ways, as the financial experts recommend, is opting for a home loan balance transfer, which could potentially lower the home loan interest rate, and, consequently, the EMI burden.
This smart move can help you repay the loan at a lower interest rate for the rest of the duration, allowing you to save a significant amount on the interest payment.
What is a home loan balance transfer?
Transferring your outstanding home loan balance from one lender to another to benefit from low interest rates is called home loan balance transfer. You can opt for a home loan transfer to a different lender during the repayment period.
When you transfer the loan, you can leverage the low interest rate offered by the lender, which will result in lower monthly payments. However, you must know that what you opt for balance transfer, you must complete the necessary paperwork as well as pay the home loan transfer charges.
How to lower your EMI by transferring your home loan?
While the prospect of transferring your home loan to a new lender and getting the benefit of lower interest rate and EMI may seem quite exciting and lucrative, you must follow the process correctly to make the most out of it.
Know the loan details
Before you approach the new lender and initiate the home loan transfer process, it is paramount that you understand the specifics of your current home loan. You must review the outstanding loan amount, the balance duration, the amount you have repaid till now, and the current interest rate.
Choose the best lender
Before you do the home loan transfer to another bank, assess the offerings from different lenders. Check if the other lender is offering the home loan at a lower interest rate as well the repayments terms are more favourable to you.
Consider the costs involved
Use the balance transfer home loan calculator to determine the possible savings from transferring your home loan. While you may have to incur certain experiences like processing fees, the lower interest can translate into reduced EMIs. So, do your calculations to check of the costs incurred offsets the savings and make an informed decision accordingly.
Know about the documentation
Just like you comply with paperwork while availing the home loan for the first time, you must complete the documentation during the home loan balance transfer as well. So, know about the documents required beforehand for completing the transfer, and keep the papers ready to avoid any delay in the transfer process.
Negotiate with the current lender
Before you proceed with transferring the home loan to a new lender, it is advisable to negotiate with the current lender and inform them that you are considering a home loan transfer as you are getting the loan at a lower interest rate from another lender. In an attempt to retain their customer, they may be willing to lower your interest rate.
At this point, it is prerogative to either continue with the same lender and repay the amount at a lower interest rate for the rest of the duration or you can proceed with the transfer of home loan to a new lender.
Complete the transfer
If you choose to transfer your home loan to a new lender, complete the entire process, and you can start repaying the balance at a lower interest rate, and subsequently the EMI will be more affordable and manageable.
Understanding the process of home loan balance transfer
If you are wondering how to transfer a home loan from one bank to another lender, here are a few important steps you must follow:
Close the loan account with the current lender
To transfer your home loan to a new lender, firstly, you must get an approval from your existing lender by submitting a letter to them requesting home loan balance transfer. After verifying your request, the lender will provide you with a loan statement, which will entail the details of outstanding balance. The lender will also issue an NOC (No Objection Certificate).
Submit the NOC to the new lender
Once you get the NOC from your existing lender, submit the same to the new lender. This step is critical so that your transfer request is approved and the new lender will then proceed to pay off the outstanding balance to the old lender and start a new loan account.
Transfer the documents
After the new loan account is opened with the new lender, your property related documents will be given to the new lender and you can start repaying the loan with the new lender at a lower interest rate and lower EMI.
Drawbacks of home loan balance transfer
While there are many benefits of opting for home loan balance transfer, it also has a few drawbacks, including –
- Transferring your home loan to a new lender could marginally lower your credit score. Also, this change in the score will be for a short period.
- Sometimes, depending on the lender that you are transferring the loan to, it would require you to go through the entire loan approval process again. This means the lender will verify your credit history and credit score, and you may have to go through all the paperwork for loan approval.
- Sometimes, the loan transfer cost may be higher than the savings you get from the loan interest rate.
Final Word
Choosing to transfer your home loan could be a wise financial decision, provided you do it correctly. It can help you save a lot of financial stress, ease the EMI burden, and increase your savings. However, make sure that you weigh all the costs and other variables before making the final decision to transfer the loan.
