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December 16th, 2021

An Essential Guide to Home Loan Balance Transfer

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Are you wondering how much you’d have saved in terms of interest and principal amount if your existing home loan was at a much lower lending rate today? Well, you’re not alone. With home loan interest rates in India circling above 7% per annum since 2020, many like you are worried if they are paying too much. Given how hefty the outgo is on a typical home loan, even a 1% interest rate drop can mean huge savings!

Thinking about a home loan balance transfer in this scenario makes sense and is a viable option. Transferring your remaining loan amount to a lender offering lucrative home loan interest rates is always a great idea. You not only get to save on your remaining interest amount but can also bring home a host of benefits. However, as good as it sounds, a home loan balance transfer isn’t the best option in each case. One should weigh the pros and cons and assess the differential savings by opting for a home loan balance transfer to take a final call.

But as is the case with every financial decision, you should not opt for a home loan transfer in haste. Your decision to go for a balance transfer loan depends on multiple factors. You should also research your options and familiarise yourself with the home loan balance transfer process to avoid surprises later.

Don’t worry if it sounds overwhelming; we’ve broken it down for you below. Let’s begin.

What is a Home Loan Balance Transfer? And How Does it Work

Simply put, the facility to transfer a home loan to another bank or lender offering a lower interest rate is called a home loan balance transfer. Borrowers servicing an existing home loan at a higher interest rate often go for it to save money on interest. 

Here are three more things to remember about home loan balance transfer:

  1. From Old to New Lender – Essentially, a home loan transfer involves your previous lender transferring the outstanding loan balance to your new lender. Then, you begin your new home loan at a lower interest rate with your new lender. It is much like taking a new home loan. So, you can expect to go through the same documentation and screening procedures which are quite a task to go through again.
    Also, the safety of your crucial and sensitive loan documents may also get compromised during the entire process. However, go for a credible housing finance company that guards the loan and property documents of every home loan customer with utmost safety.
  2. Home Loan Balance Transfer Costs – You also must consider the costs associated with a home loan balance transfer. You can expect certain processing charges and other legal and technical costs associated with property. Hence, you should factor in how these costs affect your savings before you attempt to switch lenders. You should be clear about the cost of home loan balance transfer on one side and long-term saving on the other side to weigh it logically.
  3. Eligibility Criteria – You will also have to consider the lender’s eligibility criteria. You should have paid a few EMIs previously without any default . Stable income, a decent loan-to-value ratio, and complete paperwork are other things that your new lenders require.

Must Read: All About Home Loan Process

6 Situations When a Home Loan Transfer Does & Doesn’t Make Sense 

1. While Comparing Interest Rates

The most obvious reason to go for a home loan balance transfer is when you are getting a lower interest rate from another lender. By switching, you will be eligible for lower EMIs and better repayment terms that will help you save on the overall interest burden significantly. After all, who doesn’t want to reduce this long-term financial liability and make room for more investments? Experts recommend that you carry out a cost-benefit analysis and figure out how much you will save before making a move. If the new home loan is significantly cheaper than your current rate, then a balance transfer of a home loan makes sense. You can easily do the maths with our home loan EMI calculator. 

However, the lower interest rates offered by the new lender are also liable to change throughout the loan tenure. If you’re offered a reduced floating interest rate by another lender, be mindful that the same can vary (increase or decrease) throughout the loan tenure. Make sure that you factor in the long-term saving impact when you do a cost-benefit analysis to see whether you end up saving or incurring more costs on your home loan balance transfer. If you end up saving a significant amount based on your projection, it makes sense to opt for a balance transfer or it’s a waste of time and effort.

2. While Renegotiating Interest Rates with Your Existing Lender

Before you transfer a home loan to another bank, it is your right to ask your current lender about improved home loan interest rates. This renegotiation, if successful, can save you the effort of a fresh application, the associated costs, and, of course, time. However, if your lender is not ready to meet your demands, a home loan transfer is wise. Most credible and reputed  housing finance companies accommodate an applicant’s request for reduced home loan interest rates on certain grounds. Before finalizing the balance transfer decision, make sure you have an open dialog with your lender regarding a reduction in the interest rate by paying a certain amount or offering a substantial service in lieu. 

3. Evaluating Your Long-Term Relationship with Your Existing Lender

It is common knowledge that a home loan is a long-term commitment – both at you and your service provider’s end. Naturally, with tenures often as long as 20-30 years, you want to continue your association with a dependable and accommodating lender. If your relationship with your lender is a win-win approach for you both, it is not a wise approach to go for a home loan balance transfer as doing so will make you lose out on the benefits of a long-standing relationship.

4. Weighing Other Pre-Approved Offers

There is no lack of lenders ready to attract existing home loan borrowers with pre-approved offers. These could include easy top-up loans, fee waivers, and much more. If the overall package you receive from a new lender is highly lucrative and beneficial, we recommend switching immediately.

5. Your Credit Score Has Improved

If your credit rating is now better than when you took your existing home loan, you are eligible for lower interest rates. Remember, a home loan balance transfer depends majorly on your EMI payment history and how good your credit score is. Speak to your existing provider to readjust your home loan EMIs based on your improved credit score before deciding on a home loan transfer.

6. You Have More Than Five Years Left for The Loan Repayment Tenure

Experts recommend transferring your home loan balance as early in your tenure as possible. If you have less than five years left, then understand that your EMI will mostly be the principal amount portion. Hence, even if you get a lower interest rate elsewhere, it won’t impact your long-term savings much.

Additional Read: Fixed vs Floating Rate of Interest – What Suits You The Best

Conclusion

Given all the reasons for a housing loan balance transfer, you should still be cautious and sure before making a move. Refinancing your home loan should not negatively affect your long-term financial health in any way. So, carry out the cost-benefit analysis thoroughly and read the fine print to avoid hidden expenses and conditions.

If you are still unsure, you can always connect with our in-house experts at PNB Housing Finance Ltd. As an AAA-rated lender, we offer convenient home loan interest rates, no prepayment or foreclosure charges, and easy home loan balance transfers. Check out our home loan page for more.

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