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Taking the Hassle Out of Home Loan Balance Transfer: The What, the Why and How

Owning a home is a dream come true for many. Yet, when you finance your dream home with a home loan, it’s crucial to stay financially savvy. The home loan balance transfer is a smart financial move that homeowners can consider. Often referred to as a home loan refinance, it is a process in which a borrower transfers their existing home loan from one lending institution to another. This switch is usually prompted by the desire to benefit from better terms, lower interest rates, or superior customer service. 

Let us explore the wide world of home loan balance transfer and how it can help you save on your home loan EMI payments:

Advantages of Home Loan Balance Transfer

Home loan balance transfer is a great option that offers many benefits to both the loan borrower and the provider. Here Are a few of the best reasons why you should consider home loan balance transfer:

  • Reduced Interest Rates: One of the primary reasons for opting for a balance transfer is the potential to secure a lower interest rate. A lower rate can lead to substantial long-term savings on your home loan.
  • Easier Repayment Terms: Home loan balance transfers often allow you to choose more favorable repayment terms, such as extending the loan tenure. This can help reduce your monthly EMIs, easing your financial burden.
  • Cost Savings: Switching to a lender offering reduced processing fees, zero prepayment charges, or lower administrative costs can translate into significant cost savings.
  • Enhanced Customer Service: If your current lender provides unsatisfactory customer service, a balance transfer can help you move to a lender known for its customer-friendly approach.
  • Top-Up Loan Facility: Many lenders offer a top-up loan along with the balance transfer. This allows you to borrow additional funds for other financial needs.

How Does Home Loan Balance Transfer Work?

When you transfer your home loan balance, you stand to save a tremendous amount through reduced interest rates and EMIs. Here’s a table depicting how a home loan balance transfer decreases your overall liability:

ParameterExisting loanNew loanSavings
Loan amount₹10 lakh₹10 lakh
Interest rate9%8%₹27,867 total
Tenure10 years10 years
EMI₹10,791₹10,277₹514 per month

As you can see, in this example, the borrower is able to save ₹514 on their monthly EMI and ₹27,867 in total interest by transferring their home loan balance to a new lender with a lower interest rate.

The Home Loan Balance Transfer Process

Here’s how a home loan balance transfer works:

Step 1- Evaluation and Research
The process begins with the borrower evaluating their current home loan. They consider factors such as the existing interest rate, outstanding loan amount, loan tenure, and the terms and conditions of the current lender.

Step 2- Search for a New Lender:
The borrower then researches and identifies a new lender who is willing to offer better terms, including a lower interest rate and favorable repayment conditions.

Step 3- Application to the New Lender:
The borrower applies for a home loan with the new lender. This typically involves providing the necessary documentation, which may include income proof, property documents, and credit history.

Step 4- Credit Assessment:
The new lender assesses the borrower’s creditworthiness by reviewing their credit score, income stability, and other financial details. A good credit score is essential for approval.

Step 5- Approval and Sanction:
Upon a successful evaluation, the new lender issues a sanction letter outlining the approved loan amount and terms.

Step 6- Loan Closure with Existing Lender:
With the sanction letter in hand, the borrower settles the outstanding balance with the existing lender. This can be done using the loan amount approved by the new lender.

Step 7- Disbursal of New Loan:
Once the existing loan is closed, the new lender disburses the outstanding loan balance directly to the previous lender. This process is similar to the disbursement of a new home loan.

Step 8- Repayment with the New Lender:
From this point forward, the borrower makes their home loan payments to the new lender as per the terms and conditions of the new loan agreement. This may involve lower EMIs, a longer loan tenure, or other favorable changes based on the new lender’s terms.

Home Loan Balance Transfer: 5 Key Considerations

If you are planning to transfer your home loan balance, make sure you are aware of the following aspects beforehand:

  1. Interest Rate Differential: The primary motivation for a home loan balance transfer is often to secure a lower interest rate. It’s essential to calculate whether the interest rate reduction justifies the costs associated with the balance transfer.
  1. Processing Fees and Charges: Be aware of the processing fees, legal charges, and any other associated costs with the balance transfer. Ensure that the potential savings on interest offset these expenses.
  1. Credit Score: A good credit score is crucial for approval with the new lender. Make sure your credit score is in good shape before initiating the transfer.
  1. Eligibility and Documentation: Ensure that you meet the eligibility criteria of the new lender and have all the necessary documents in place for a smooth transition.
  1. Remaining Loan Tenure: Balance transfers are most beneficial when there is a substantial outstanding principal amount. Ensure that you have sufficient time left on your loan tenure to make the interest rate reduction worthwhile.

Conclusion

A home loan balance transfer can be a financial lifeline, providing opportunities for significant savings and improved loan terms. However, it is vital to conduct thorough research, weigh the costs, and ensure that the move aligns with your financial goals. By doing so, you can maximize the benefits of this financial strategy and take another step toward making your dream home truly your own.

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Frequently Asked Questions (FAQs):

Finnable has set a required minimum age for personal loan of 21 years for individuals to be eligible for a personal loan. This ensures that applicants have reached legal adulthood and are capable of entering into a financial agreement.

Yes, Finnable understands the financial needs of young borrowers and offers personalised loan options tailored to their specific requirements. Whether it's financing higher education, purchasing essential items, or starting a business venture, Finnable provides support to young individuals seeking financial assistance.

Borrowers nearing retirement may have unique financial needs, such as retirement planning, medical expenses, or supporting their children's education. Finnable offers personalised loan solutions that consider the specific circumstances of pre-retirement individuals, helping them meet their financial goals.

Unfortunately, no. Finnable does not, at the moment, offer any loans to senior citizens. Currently, 60 is the maximum age for personal loans set by Finnable

Other than personal loan age limits, Finnable considers various other factors for determining loan eligibility. These factors may include the applicant's income, credit score, repayment capacity, and employment stability. By assessing these aspects comprehensively, Finnable ensures that borrowers across different age groups can access the loan products that best suit their financial needs. 

 

Amit Arora

I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.
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