July 15, 2024

Save More with a Home Loan Balance Transfer: A Complete Guide

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Home loans come with many benefits and one of these benefits that make home loans unique is the home loan balance transfer facility. Individuals repaying a home loan can transfer their remaining home loan amount if they find another lender willing to re-finance their home loan at more favourable loan terms and conditions, including lower home loan interest rates or a more favourable home loan tenor. 

Sometimes, some home loan borrowers may even choose to transfer their home loan to another lender to benefit from better customer service or avail of a top-up loan, which are essentially low-interest rate loans with flexible end usage. 

In this article, we look at everything one needs to know about the home loan balance transfer facility. 

Home Loan Balance Transfer: Eligibility Requirements 

If you are planning to apply for a home loan balance transfer, know that this facility is available only to existing home loan borrowers. Besides, most lenders require borrowers to meet the following eligibility requirements to be considered eligible for a home loan balance transfer. Here are the home loan eligibility requirements that lenders ask for:

1. Most lenders consider loan applicants eligible for a home loan balance transfer only when they are within the age bracket of 23 and 65.

2. To be considered eligible for a home loan balance transfer, it is mandatory that the loan borrower must have completed paying at least 12 EMIs. 

3. There must have not been more than one EMI bounce over the past year. Further, you must have cleared this pending amount before the next due date. 

4. You must be a salaried or self-employed professional with a regular income source.

Home Loan Transfer Charges 

If you are planning to apply for a home loan balance transfer, know that a couple of different charges will be applicable. To start with, to opt for a home loan balance transfer, you will first need to close your loan account with your current lender (do not worry, if your balance transfer request gets accepted, your new lender will pay off your current lender).  

Now, as per the RBI rules and regulations, individuals on floating interest rates can foreclose their loan amount without incurring any additional late fee or penalty. However, lenders can levy home loan foreclosure charges on individuals who have chosen to repay their home loan at fixed interest rates. 

This penalty can go as high as 4% of the pending home loan amount. Thus, before you decide to apply for a home loan balance transfer, the first thing that you must do is talk to your current lender and get a clear idea of the charges applicable to the balance transfer. 

Once you have a clear understanding of these charges, talk to your new lender or the lender to whom you wish to transfer your home loan and ask them about the home loan balance transfer fee that they will apply. The home loan balance transfer ranges from .25% to 2%. Once you know the home loan balance transfer fee and the foreclosure charges, use a home loan balance transfer calculator to assess if the home loan balance transfer will even prove beneficial for you. Go for a balance transfer only if the overall money you will save by way of a balance transfer is much higher than the charges you will need to pay in the form of penalties.

Home Loan Balance Transfer Process 

Those planning to switch lenders must know that the home loan balance transfer includes the following steps: 

1. If you want to switch lenders, one of the first things that you will need to do is request your current lender to allow you to balance transfer your loan. If your current lender has no objections, they will release all the required documents along with a statement mentioning your repayment history.

2. Next, you will apply to your new lender for a balance transfer. If they accept your loan request, they will pay off your current lender and the balance transfer will be considered complete. Once this is done, you will start paying your loan EMIs to your new lender. 

Final Words

The home loan balance transfer facility can prove to be highly advantageous, however only if one avails it of after carefully assessing both the pros and cons as well as all the charges involved.