When you apply for a home loan, you may choose a lender that offers the best service and at an affordable interest rate. Suppose you are unhappy with the lender’s services or think you can get a better offer from another lender after the loan is approved; in that case, you can transfer your loan to a different financial institution and get the benefit of lower interest and better service. This is called a home loan balance transfer.
Just like applying for a home loan, choosing a home loan balance transfer is an important decision. You must be aware of certain things. So, to help you make the most out of a home loan balance transfer, we list down a few tips.
- Know about the new financial institution’s credibility
It is easy to get tempted by the various online advertisements by different lenders about their low interest rate home loans. However, it is paramount that you do a background check on the lender’s reputation and credibility before deciding on a home loan balance transfer.
Often, the private lenders who do online promotions about offering home loans at low interest rates do not have a strong financial standing, and there is always a risk of facing legal issues with them. So, it is better to avail of a home loan with only reputed banks and NBFCs.
- Consider the balance tenure
Many financial experts recommend doing a home loan balance transfer during the initial few years of the home loan tenure. For example, if you have availed of a home loan for 20 years, it is better to move your loan to a different lender within the first 5-7 years.
This is because, during the initial few years, a large portion of the EMI goes towards repaying the interest amount. As you continue to repay the amount over the years, the interest component decreases, and a major portion of the EMI goes towards repaying the principal amount.
So, when you move your loan during the initial years, you can take advantage of the lower interest rate offered by the new lender and reduce your overall interest payment. As the interest is lower, your EMI may also be lower and more affordable. This helps you save a significant amount in the long run. You can use the home loan balance transfer calculator to compute the difference in the EMI due to the difference in the interest rate.
- Be aware of the cost involved with refinancing the loan
A home loan balance transfer, also commonly referred to as home loan refinancing, may involve certain costs, like paying the processing fee and documentation verification charges with the new lender. So, make sure that you do the cost vs benefit analysis correctly so that when you transfer, you don’t incur a higher cost than the benefits you get. Also, ensure the lender does not have any hidden charges.
- Know the new terms and conditions
When you opt for a home loan balance transfer, the new financial organisation may have specific terms and conditions. So, before you sign the documents, you must carefully read the fine print and check if home loan refinancing is really beneficial to you.
A home loan balance transfer is an excellent facility offered by financial organisations that makes home loan repayment easier and more affordable. However, you must do your analysis and be aware of the various aspects of home loan transfer to ensure that you get a good offer.