Three years ago, Bharat Rajagopal, an IT professional from Bengaluru, had taken a Home Loan of Rs.30 lakh from a bank. The loan came with a tenure of 20 years and a fixed interest rate of 10.5% per annum. Since it was a fixed rate of interest, he was unable to save up on interest when the bank reduced its Home Loan interest rates in the coming months. The bank turned down his requests to convert his Home Loan to a floating interest rate every time. Bharat decided to apply for a Home Loan Balance Transfer. He chose an alternative lender – a non-banking financial company (NBFC) – offering a lower rate of interest and better services on Home Loans. The lower Home Loan interest rate meant his EMI payments were lower as well.
Falling Home Loan interest rates has prompted many borrowers like Bharat to opt for a Home Loan Balance Transfer. However, a lower interest rate should not be the only reason to transfer your Home Loan. Here is all that a Home Loan Balance Transfer entails:
- What is a Home Loan Balance Transfer?
When you transfer your existing Home Loan to another bank or NBFC or lender, it is called a Home Loan Balance Transfer. Applicants may opt for an alternative lender because of lower interest rates, better service, special offers or privileges, and top-up loan facility.
- What are the Benefits of a Balance Transfer?
There are a number of advantages towards transferring your Home Loan. You should apply for a Home Loan Balance Transfer when you want:
- A Lower Home Loan Interest Rate– If there is a fall in market rates and you’re still paying higher Home Loan interest rates, you may transfer your existing Home Loan.
- A Longer Repayment Tenure– If existing Home Loan provider is not allowing you to extend your loan tenure, it may be time to shift the loan to another lender willing to do the same.
- A Top-up Loan– New loan providers may be more open to giving you a top-up loan.
- Better Services– You may get assistance from a new lender with a Home Loan Balance Transfer.
However, you must check all the terms and conditions involved before going ahead with a Home Loan Balance Transfer. Use a Home Loan EMI Calculator too before you proceed.
3.Why is Home Loan Balance Transfer a Popular Financing Option?
People who opt for a Home Loan Balance Transfer often do so because they have been bogged down by the high interest rate on their existing Home Loans. The lower Home Loan interest rates from a new lender translates to reduced interest pay out and more savings. Poor service from an existing Home Loan lender can be the driver behind the decision too. Applicants also transfer their Home Loan if their existing lender does not provide special offers or privileges despite having a good repayment record. Another valid reason for a Home Loan Balance Transfer is if your existing lender does not have a top-up loan facility. Top-up loans are a good bet if you require finance over and above the existing Home Loan amount. You can use the loan amount renovating your home renovation, buying consumer durables or even for meeting sudden expenses.
4.What You Need Remember Before Applying for a Home Loan Balance Transfer
Did you know that in the initial years of your Home Loan, the interest component of the EMI is much higher than the principal component? Therefore, if you opt for a Home Loan Balance Transfer in the in the early stages of your existing Home Loan, the interest component of your EMI will come down considerably. This will allow you a reduced interest pay out.
What happens when you apply for a Home Loan Balance Transfer in the later stages of your Home Loan? Since you have already repaid a major chunk of the Home Loan interest, you may end up paying a higher interest. What is more, you may also have to pay extra fees which otherwise are applicable on new Home Loans, such as processing fees and legal charges.
You should always bear in mind that when it comes to a Home Loan Balance Transfer, there will be a transfer of the original documents between your previous and new lenders. This means there is always a chance your documents might get lost or misplaced. Therefore, make sure you verify the list of documents being transferred.
5.Do You Have to Pay Any Fees for Home Loan Balance Transfer?
It varies from lender to lender. Some lenders might charge you a processing fee when you opt for a Home Loan Balance Transfer while might be willing to waive it off if your loan repayment record is good. You might also have to pay 0.5% of the loan amount or a hefty fee to your existing lender for permission to close your Home Loan account. Your lender may do this to recover the expenses come up from maintaining your loan account and to support the losses to some extent.
6.How Does the Home Loan Balance Transfer Application Process Work?
You will need to submit a letter to your current lender requesting for a Home Loan Balance Transfer. In many a case, the lender might slash the Home Loan interest rates to retain you as their customer. However, you may have to re-book your Home Loan at a lower interest rate or pay a one-time switch fee. You have the option to either opt for this offer, or insist on a Home Loan Balance Transfer if you are getting a lower rate from another lender, and your bank hasn’t been responding to your requests. When you apply for a Home Loan Balance Transfer, the lender will provide you a consent letter or a NOC that will mention the outstanding balance of your existing Home Loan. You need to submit this letter to the new lender you have chosen who will sanction your Home Loan balance to the previous lender and get a Home Loan closure letter. Your previous lender will hand over the documents to the new lender and cancel all your post-dated cheques or ECS.
If you want to get a Home Loan Balance Transfer, you need to prepare well in advance. Here is general list of documents for a Home Loan transfer which lenders will ask you for:
- Copy of the property documents
- Information regarding the outstanding Home Loan amount
- Foreclosure letter of the Home Loan
There is an additional set of documents that you have to submit when applying for a Home Loan Balance Transfer. These vary, depending on whether you are a salaried professional or a self-employed individual.
For Salaried Candidates
- Certificate of employment
- Copies of your salary slip
- TDS certificate
- Bank account statements and the latest Form 16 issued by your employer
For Self-Employed Individuals
- Copy of audited financial statements
- Copy of the partnership deed in case of a partnership firm
- Copy of Memorandum of Association (MOA) and Articles of Association (AOA)
- Profit and loss account details
- Income tax assessment details
8.Are You Eligible for a Home Loan Balance Transfer?
There are plenty of lenders in India who offer options for Home Loan Balance Transfer. Make sure you do your research about their Home Loan interest rates, as well as their eligibility criteria. Knowing whether you meet the eligibility criteria before you apply for a Home Loan Balance Transfer will save you time and frustration.
Following are some common eligibility requirements for a Home Loan Balance Transfer that must be satisfied:
- You must be an Indian national
- Your age must fall between 28-70 years
- If you are a salaried individual, you must have a stable monthly salary
- If you are a self-employed individual, your business must be at least 5 years old
- Details that indicate steady employment and income
- Solid credit score without any history of loan defaults or late EMI payments
9. How Easy is it to Apply for a Home Loan Balance Transfer Online?
The Internet has made almost every part of our lives easier. Nowadays, you can apply online for a loan as well. Lenders like Bajaj Finserv allow you to submit a Home Loan Balance Transfer application online. This means you don’t have to make trips to the lender to collect the application, and submit the filled in form and documents. There is arguably no other way to save time when it comes to transferring your existing Home Loan. Whether you apply online for a Home Loan Balance Transfer while traveling or while watching a movie, you can do it whenever the time is convenient for you. Unlike a hard application for traditional loans, applying for online Home Loan Balance Transfer is as easy as it can get. All you have to do is visit the lender’s website, fill in the online application form, select your loan amount and tenure, pay a secure fee and upload your documentation.