Does your bank charge higher interest rates on your home loan than the other banks? Are you regretting your decision to choose that bank? Do you want to learn how you can lower your home loan interest rate? Then this article is for you! It can be as simple as transferring your loan to another bank. We will discuss home loan balance transfer and its benefits. Also, we will learn the points you should keep in mind before opting for a home loan balance transfer. It will help you plan your investments accordingly.
A home loan balance transfer is simply the process of transferring your home loan from one bank to another to enjoy a lower interest rate in exchange for a one-time processing fee. But the lower interest rate means that the total amount of interest paid over the life of the loan is less, which saves a lot of money.
What is a home loan balance transfer?
Let’s say you suddenly realise you are paying a massive amount of interest to your bank on your loan compared to the rates available at other banks. You ask your bank to reduce the rates, but your request gets denied. This is the ideal time to opt for a home loan balance transfer. When you opt for a home loan balance transfer, your new lender bank pays off the outstanding amount to the old lender. You now pay back your loan to the new lender in instalments. But it will be at a much lower home loan balance transfer interest rate.
When should you opt for a home loan balance transfer?
Here is a list of certain scenarios in which you should consider getting a home loan balance transfer.
Eligible for a lower-interest loan from another lender
Home loan interest depends on many factors, including the Reserve Bank of India changing the interest rates, your credit profile, and other financial factors decided on by a lender. Home loan interest rates differ from bank to bank depending on these factors. Home loan borrowers might take up this opportunity and opt for a home loan balance transfer to pay off the rest of the loan at a lower interest rate.
Improved credit profile
Your credit profile is determined by your CRP, or credit risk premium, which the respective lenders use as criteria for setting the home loan interest rate. The CPR score improves when the credit score improves or with growth in salary and job profile. If your credit score goes up in this way, you can get a much lower interest rate on a home loan from another lender, making a home loan balance transfer the best choice.
Huge outstanding loan amount
When the loan amount is huge, or when most of it is yet to be paid, you can save a significant chunk of money by getting a home loan bank transfer because of the lower interest rates.
Longer Loan Payment Tenure
Although you will save money on interest regardless of how many years of loan payments remain, the longer the loan term remains, the more money on interest can be saved. Also, it is often seen that when the loan term is short, even if the borrower saves money on interest, the cost of transferring the loan will be more than the amount saved, so the borrower loses money overall.
Change the type of interest rate
A home loan can have a fixed or floating interest rate. The fixed interest rate will remain constant throughout the whole loan tenure, but the floating interest rate varies with changes in the repo rate set by the RBI. If there is a possibility of home loan interest rates falling shortly, changing to a floating interest rate is the ideal option if you are doing otherwise.
Whereas if interest is predicted to increase in the future, opting for a fixed rate of interest on a home loan is the best option. Thus, a home loan balance transfer is ideal in this condition where changing the type of interest ends in monetary benefits.
Points to keep in mind when opting for a home loan balance transfer
Fees and overall charges
Any individual will opt for a home loan balance transfer to decrease their interest rate, ultimately saving some money in the entire process. But sometimes, the fee involved in the transfer exceeds the gains from the savings on interest money. A home loan balance transfer often includes additional expenses such as processing fees, stamp duty, home loan balance transfer fees, and many other additional charges. To remain in overall profit, you must consider the above expenses when considering a balance transfer.
You need to check for the foreclosure charges imposed by the new lender. If the foreclosure charges are heavy, it will hurt your overall profitability.
Timing of the transfer
When the loan tenure ends in a few months or years, opting for a home loan balance transfer will only increase the expenses instead of reducing them. It is best to choose a balance transfer when more than half of the loan term is still left.
Terms involved in the process
Opting for a home loan balance transfer every time there is a reduction in interest rates is not necessarily an intelligent option. You should understand the terms of the transfer very clearly, and the overall profitability analysis of the entire process is a must. Different lenders might offer lucrative offers, but often they will be attached with different underlying terms and conditions. You need to understand them and only then opt for the home loan balance transfer.
A home loan balance transfer is an excellent option to save money on interest as long as you understand the underlying costs involved in the process and analyse the profitability of the entire process. To avail of our services or to learn more about home loans and other important financial concepts, visit the Piramal Finance website.