Home Loan Balance Transfer
Home Loan Balance Transfer is an option available to someone who is running a home loan, to move the loan to another bank. The incidence of such balance transfers is on the rise since banks are competing to grow their home loan book and offer good terms to customers wanting to switch their home loan. The fact that the customer does not need to pay a penalty to the existing lender, makes the transfer cost inexpensive.

There are various reasons that could prompt customers to balance transfer their home loan. This includes:

a. If they realize that they are paying an interest rate that is higher than the prevailing rates in the market. So the purpose for such a balance transfer is to get a better deal and reduce the interest cost.

b. If they are unhappy with the service standards of their existing lender.

c. To switch from a floating rate to a fixed rate of interest.

d. To opt for a Home Loan overdraft facility, where the existing lender does not offer such a product option.
Where the customer opts to take a higher loan from new lender, than the current home loan outstanding, this is commonly referred to as a Home Loan Balance Transfer and Top up. In such instances, the new lender repays the existing lender the current loan outstanding and the top up portion of the loan is paid directly to the borrower.
The borrower can use this top up for any personal or business purpose eg. home renovation, medical or education expenses, repaying other high cost loans or credit card dues, business expansion etc.
There is no restriction for a customer to transfer a home loan as per the standard terms of a home loan agreement. However, in practice, banks have policies that require them to check for repayment behavior of at least 6 months on the existing home loan, before offering a balance transfer facility. In the case of home loan balance transfer and top up, banks usually require a 12 month repayment track record, before they review such a loan request.
Most banks lend as per the under-mentioned grid, provided the borrower can demonstrate the ability to repay the loan amount.

Loan amount % of Cost of Property
a) Up to Rs. 25 lakhs90%
b) More than Rs. 25 lakhs & up to Rs. 75 lakhs          80%
c) Above Rs. 75 lakhs 75%

Few institutions even go up to 90%, for select borrowers / properties, even for (b) and (c) above.
Your loan eligibility is determined after looking at the following:
  • Your current Income
  • The nature and continuity of your employment
  • Your current obligations i.e. the installments (EMI’s) you are currently paying, your credit card balance, other credit limits availed
  • Your credit history
  • The lending bank or institution will also consider which property you had purchased when you initially availed the home loan. In the event it is a property under construction by a developer, the credibility of the developer and past performance on their projects will also determine how much the lender is willing to lend against such a property. Lenders normally do not offer a top up loan where the property is still under construction. An exception could be made where the initial home loan availed was lower than the maximum allowable percentage of property cost as per regulation.
  • The end-use/purpose of availing a top up is also discussed with the lender and may have a bearing on the loan sanction
The purpose of having a co-applicant to a loan is to be able to club the income of your co-applicant and yourself to get a higher eligibility on your home loan. All property owners need to necessarily be co-applicants on the loan. Other members of ones immediate family may also become co-applicants to a home loan viz. spouses, parents, children& siblings. Where income from a partnership or company is considered, the partners / directors can also become co-applicants, if the policy of the lender allows.
  • Identify the home loan you intend to transfer. Get details of our current loan outstanding from your bank by way of a balance confirmation certificate.
  • Determine your Loan Eligibility - This differs from lender to lender and depends on various factors like your age, income, profile, past credit performance etc. Just contact mymoneymantra and our Mortgage Loan Specialist will help you check your eligibility across lenders. We will also help you get the best deal.
  • Apply for the Loan with the lender of your choice by filling the application form of the lender and provide all requisite documents. Our team will meet you at your convenience and help you choose the lender best suited for your requirements, completing all documentation requirements and getting your application logged in with the lender. All this at NO COST to you as our partner banks pay us for our efforts in this regard.
  • Verification/Credit Appraisal Process- The lender will verify the information and documentation provided along with checking your credit history. The lender can also ask for additional documents.
  • Legal Document Checking - The lender will do a title search of the property to ensure that the current ownership is valid. This is done either through an in-house legal department or an external legal firm.
  • Property Valuation - The lender also gets an in-house or independent valuation for the property to determine the loan amount. For large loans, some lenders get 2 valuations done for the same property and could determine the loan amount basis the lower valuation. The valuer will also check if the building meets the approved building norms. The upkeep of the property is an important factor considered by the valuer and lender. Similarly, the future expected life of the building is normally required to exceed the tenure of the loan sanctioned.
  • Personal Discussion - The lender will normally meet or speak to the borrower during the loan appraisal process. Some of the aspects that come up during such discussions are :
    1. Details of the property transaction
    2. Income details including latest year financial trend
    3. Business / job aspects
    4. Other investments, savings, repayment capability
    5. End-use/Purpose of taking the top up loan
  • Loan Offer letter - Post verification and credit appraisal process, the lender sends an offer letter with details like loan amount, tenure, rate of interest and other terms and conditions.
  • Accept the terms and conditions of the Sanction Letter before proceeding to the next step.
  • Sign the Loan Agreement and provide repayment instructions. Submit the entire chain of original property papers to the bank for mortgage.
  • Disbursal of Loan - The new lender will first make a payment to your existing lender, basis the balance confirmation certificate issued by them. Once the funds are cleared, the existing lender will handover the property documents in their possession to the new lender. The top up loan will then be credited to your bank account directly by the new lender. Our Mortgage specialist will assist you all the way. No need to worry, as we are just a phone call away at all times. We will be happy to hear from you even after the loan has been disbursed, if you would like any help or clarification regarding your loan.
Availing a Home Loan Balance Transfer and Top up is an important decision, given that this is a long term commitment and you are offering a valuable property as collateral. So take a moment to consider all possible options and scenarios before choosing your loan and your loan provider.

Use the following mantras and hopefully you will not make any regrettable decisions!
  1. Cheapest isn’t always the best. Do not just go by who is offering the lowest interest rates. The cheapest may not be the best bet for you.
  2. Compare. Check your loan eligibility across multiple institutions and see who is offering you the maximum funds, lowest rates, better pre-payment options, longer tenure, minimum documentation, better product structure etc.
  3. To fix or to float? Choose the type of interest rate you are going for with caution. Whether to go with a fixed rate or floating rate deal is a decision you need to base on the current market dynamics around interest rates as well as what you expect to happen over the next few years. Our Mortgage Loan specialists will be happy to advice you in this regard.
  4. Assess all costs. The application costs such as application fee, legal fee, title search report charges, valuation cost, processing fee, loan agreement stamping charges etc. vary by lender. These are significant expenses and add to the overall cost of the loan. So do not just go by just interest rates. There may be some such expenses that you need to be aware of. We will be happy to guide you all the way.
  5. Know your exit options clearly. Learn about the pre-payment process. Banks normally book two separate loans :
    a. A Home Loan (for the balance transfer portion), so that the borrower continues to avail tax benefits and is also not required to pay any penalty on this portion in case of pre-payment.
    b. A Top up loan for the, which has separate tax treatment as this does not qualify as a Home Loan for purposes of Income Tax benefits. On such Top up loans, the regulators have made partial and full pre-payments free of cost for individual borrowers. This is a great help to you, as you can cut your interest cost by making additional repayment as and when you have surplus funds available. However for other borrowers like partnerships and companies, a pre-payment change of 2%-5% is normally applicable on the top up loan.

    There could also be restrictions laid down on when and how much pre-payment can be done in a year. In the event you find a better deal that you want to switch to or you simply want to pay off your loan early, this penalty can make the decision an expensive one.
  6. Service before sales. Evaluate the service performance of the lender you are going with. Cheap loans do not always mean good service.
  7. Safety first. Especially in such products like Home Loan Balance Transfer and Top up where a security is given to the lender, do ask sufficient questions about the nature and process of storing or retrieving your security documents.  Make sure you obtain and keep a copy of the list of documents held by the bank.