According to RBI guidelines, lending institutions cannot levy a penalty on individuals for foreclosure or prepaying home loans at floating interest rates. Earlier, borrowers avoided prepaying a loan because of higher prepayment charges.
But now, this guideline allows borrowers to avail lower interest rates offered by other lenders by opting for a home loan balance transfer. Hence, reducing your EMIs and making your home loan much more affordable. Should you go for a loan balance transfer? What are the factors to consider?
Benefits Of Home Loan Balance Transfer
The biggest reason why most people opt for a home loan balance transfer is a lower interest rate. If, by chance, the interest rate falls and there is a lender who is potentially willing to offer a reduced home loan interest rate, then you should consider switching your lender. More benefits are detailed below.
Avail Lower Interest Rates
The most obvious benefit and one of the primary reasons why people opt for balance transfer is the lower interest rates. If your existing loan carries a higher interest rate even during favourable market conditions, a loan balance transfer is a way to go. Of course, the interest rates offered on the new loan will depend on your credit profile and eligibility.
Moreover, you can also avail attractive interest rates if your credit rating has improved during the loan tenure. This way, you will have to bear a lower interest on the remaining loan, and your EMI also decreases.
Ask For Better Home Loan Terms
A home loan balance transfer also gives you the opportunity to revisit your home loan terms and switch lenders if you’re not satisfied. For instance, if your existing lender charges you a higher prepayment penalty, or if you want to switch from fixed to floating interest rates to avoid foreclosure charges, a loan balance transfer can help you shift to better loan terms.
Alter Loan Tenure
When applying for a loan, you must consider your income, financial obligations, interest rates offered, and more to choose the right loan tenure. But over time, it might be possible that your current tenure is no longer convenient for you. Perhaps your financial obligations have increased, and you want to pay lower EMIs, or you have received a significant bonus.
Either way, home loan refinancing or balance transfer allows you to reassess your loan tenure to make the repayment more affordable.
Get A Top-Up Loan
In case you need more funds to finance your new home, you may take a top-up loan when opting for a home loan balance transfer. Most lenders offer a top-up loan facility at attractive interest rates over and above your existing loan.
Enjoy Better Customer Service
Better customer service is another benefit you can enjoy with a home loan balance transfer. For instance, your existing lender might not offer 24×7 customer service, or you might not be able to manage your home loan via their website or app. Whatever the case, you can switch to a lender with better services by refinancing your loan.
Factors To Consider When Opting For A Home Loan Balance Transfer
A few things you must consider before transferring your home loan to a new lender.
1. Credit Score
When you apply for a home loan balance transfer, the lender will check your credit report to assess your creditworthiness before sanctioning the loan. If you have maintained a good credit score with timely EMI payments, you can easily negotiate with the new lender for lower interest rates.
However, an inconsistent EMI payment history can lower your credit score and hamper your chances of availing home loan balance transfer.
2. Cost Of Refinancing
Most people only choose home loan refinancing to benefit from better interest rates. However, it is not the only key factor affecting the cost of your loan. Along with lower interest rates, consider other charges like loan processing fees, prepayment charges, foreclosure charges, and more offered by the lender.
If the cost of refinancing is less than your existing loan costs, it is best to move forward with it.
3. Terms On The New Home Loan
You must read the terms and conditions of your new loan carefully to avoid any hidden charges or unfavourable loan terms.