5 Things to Check before Opting for a Home Loan Balance Transfer

Emails or posts from your lenders only seem great when they carry wishes for your birthday or the festive season. When such communication tells you that the interest rate on your Home Loan has been increased, it is disappointing and even frustrating. If you too have faced such a situation in the past few months, then it is probably time to find another lender for your mortgage, who can offer you a lower interest rate. After all, you shouldn’t have to sell out more money than you already do to service a long-running credit such as a Home Loan!

So, how do you switch lenders? You can do this by making use of the Home Loan Balance Transfer or HLBT facility. Thanks to this alternative, you can quickly close your loan with the existing bank, and switch to a new lender who is ready to offer you a comparatively lower rate. While Home Loan Balance Transfer Offers are great for those struggling to pay their equated monthly instalments (EMIs), you should take into consideration the below-mentioned aspects before arriving on any decision:

1. Rate Differential

While a hike in interest rate will affect your EMI as well as your overall interest outgo, make sure to calculate the exact difference in these numbers as an effect of the changed rates. In most cases, when the difference is of a meagre 25 to 50 basis points, the impact is too little to command your attention. In such a case, it is better to continue with your existing lender.

Then again, if your new lender is offering you a rate that is only slightly lower than your current bank, you may want to skip the Home Loan Balance Transfer process altogether. Since the facility will need you to pay numerous additional charges such as foreclosure fee, processing fee, legal and documentation charges, and so on, you may end up spending more than you actually save.

You should only think about taking this step if the rate differential is a minimum of 75 basis points or more.

2. Legwork

Every bank wants to retain its existing customers, and the same is true for your bank as well. Hence, when you try to transfer your Home Loan, your bank would try to discourage you from doing so by making the process cumbersome through a lot of paperwork, and by making it a compulsion for you to visit the branch a few times. If you are someone who wouldn’t want to put in the time and efforts required towards this seemingly futile exercise, you should rethink your decision. On the plus side, you could ask your bank to offer a better deal on your existing loan. More often than not, you can get it to reduce the rate marginally so as to retain you. Not only will this save you from the additional efforts you would have to put in to transfer your loan, but will also help you save on the processing fee and other charges that your new bank would levy.

3. Change in Terms

Contrary to popular belief, HLBT is not just a tool that helps you procure a loan with lower interest. It can, in fact, help you to transfer your home mortgage to a bank that is willing to offer you an extended tenure, or even an additional sum of money. While you can restructure your loan with your existing bank as well, more often than not, you will only qualify for a Home Loan top-up, which will be offered at a higher rate of interest than that being charged on your Home Loan.

Hence, switching lender may give you the opportunity to procure additional funds at similar or sometimes, even lower rates than earlier. That being said, you should opt for these funds only if you absolutely need them, and not just because they are readily available.

4. Added Benefits

Today, in times of increased competition, most banks are compelled to lure their customers with attractive offers. In the wake of this, it can be more than convenient for you to gain additional benefits such as locker facilities, Credit Cards, Fixed Deposit, current accounts and more, with your Home Loan.

When looking at Home Loan Balance Transfer offers, you should understand that your new bank may not be willing to give you all these facilities at discounted prices. Hence, you should take into account that additional cost that you will bear on a yearly basis to enjoy the same, after witching your lender.

5. Credit Score

As is the case with every credit facility, even HLBT can only be availed if you have an excellent credit score, preferably 650 or above. After all, the new lender would not want to get into a loan agreement with a borrower with a poor repayment history.

Hence, before you approach a bank seeking this facility, make sure you order a free copy of your score from one of the three leading credit bureaus in India. Once you get the report, analyse your history and check your score. If your score is lower than 650, you might need to work on it, before looking out for HLBT offers. On the other hand, if you have a high score, you can use it to your benefit while negotiating the terms of your new loan!

We hope that you are now aware of some of the most relevant aspects that need your due diligence when you are contemplating Home Loan Balance Transfer offers. If you still feel confused regarding any aspect of this facility, or whether you should opt for it or not, you should seek the assistance of your financial advisor for the same.

Also Read: Home Loan Balance Transfer Can Reduce Your EMI by 13%

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