You are struggling to pay the EMI’s on your home loan. You are deep in debt and don’t know how to come out of it. This is when you learn there is a way out of your problems. The home loan balance transfer, also called home loan switching or home loan refinancing.
What is home loan balance transfer?
You are struggling to pay back your home loan EMI’s with your bank. This is when you come across another bank, charging a lesser rate of interest to its home loan customers. You want to transfer your home loan from your bank to this new bank through a process known as the home loan balance transfer. Under the home loan balance transfer, you can transfer the entire unpaid principal amount on your home loan, from your bank to this new bank, which charges you a lesser rate of interest. The new bank then settles (pays back) the home loan, with your bank. (Balance principal amount).You will now have to repay the home loan to the new bank. The new bank will charge you a processing fee for the home loan balance transfer. You can negotiate with this bank to reduce or waive off the processing fee. The new bank will offer you a home loan at the same interest rate it offers its new borrowers.
Things to note before home loan balance transfer?
Remaining tenure of the home loan
When you do a home loan balance transfer you need to consider the amount you would save. It is pointless doing a home loan balance transfer, towards the end of the tenure of your home loan. There is very little time left for any meaningful saving. You must switch your home loan as early in the tenure as possible so that you get the maximum benefit out of the balance transfer.
Cost of the home loan balance transfer
When you do a home loan balance transfer, the difference in interest rates charged between the two banks on the home loan, should be sufficiently large. If the difference in interest rates between the two banks is not sufficiently high, the cost of the balance transfer would eat up any gains, you make from the home loan balance transfer. What are the costs involved in a home loan balance transfer? The new bank where you transfer your home loan might charge a processing fee for the home loan balance transfer. Fortunately for you the prepayment penalty on floating rate home loans has been removed. There might also be stamp duty charges. You need to consider all these costs when you balance transfer your home loan.
Your outstanding home loan principal amount
If you balance transfer your home loan very early in its tenure (say within a couple of years of availing the home loan), most of the outstanding home loan principal amount (home loan principal amount yet to be repaid), would be due. This gives you a chance to save on the interest costs of your home loan. It would be pointless doing a home loan balance transfer when you have repaid most of your home loan principal.
Save on time and effort
You must first try negotiating with your bank for a lower rate of interest. Your bank might be willing to retain you as a customer and would re-negotiate the home loan rate. This means your bank itself will offer you a lower rate of interest on the home loan. This would not only save you unnecessary costs in a home loan balance transfer but also time and energy.
You now know what you must do before opting for a home loan balance transfer.
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