Home loan Balance Transfer in the process by which one could transfer their existing home loan to another bank if they wish to, which is often the case when they find the other bank or NBFC offering a lower interest rate than what they are currently paying to their bank. One has to apply for the balance transfer by filling in an application. Certain information like the amount one would save on the loan as well as top-up loan has to be provided. Naturally, once approved, it brings down the EMI amount and the debtor ends up saving money which he utilizes on the other aspects of looking after his household.
However, the debtor cannot make the application of balance transfer immediately after he has been approved for the home loan. He has to make at least 12 consecutive EMI payments to his own bank, without any defaults or dues, before he can apply for a balance transfer. This is to ensure the new bank that the debtor is a reliable person to lend to and take on his loan. There have to be quite a few benefits of balance transfer or else why would someone want to opt for it.
Key aspects of these transactions
The home loan interest rates are significantly lowered. In case there is a security provided for the loan, the risk of the lender is further reduced and hence the interest on the mortgage also becomes lower. This allows the debtor to successfully pay off his loan without his security being taken by the bank for non- repayment. The reduction n interest rate could be up to 5% depending on the bank you are transferring to and this is a significant amount. Imagine your home loan interest coming down from 15% to 10% only. Opt for the housing loan calculator to calculate your savings.
Balance transfer options still allow pre-payment facilities. Some debtors often doubt whether opting for the transfer would mean they would not be allowed to make prepayments anymore. The debtor would still be able to pre-close the loan if he wants to. There are no additional charges for opting for the transfer.
Since the first bank had already conducted all the necessary verification while disbursing the loan, there is a lot less paperwork to deal with while making the balance transfers. Yes, the second bank will of course once look at the credentials and the existing loan documents, but by and large, the process is not at all time consuming and requires very like paperwork. So go ahead and apply for a home loan now and you can always transfer it later.
The Top Up value offered is often higher compared to what the first bank was offering. The loan repayment is going to be faster with the reduced EMI rates and this will in turn help in getting bigger amounts for a loan for any top-up requirement. The interest saving is going to apply to the present EMI, the outstanding principal amount and as well as to the existing interest charged by the first bank.
How home loan balance transfers work
For example, someone has taken a home loan of Rs 45 lakhs from Bank A at 12% interest for a period of 25 years. After three years of making repayments, he comes to know that another bank of NBFC is offering loans at 10% interest. Naturally, if he transfers the outstanding loan balance to Bank B, then for the next 22 years he would be paying far less each month for the EMIs and he could be using the money for something else, for paying the insurance premium or just be able to afford a better lifestyle for the family.
There are a few criteria before one can apply for a balance transfer though. The first is that the outstanding loan amount should be more than Rs 5 lakhs to make the transfer. The other is that the debtor should have made at least 12 consecutive EMI payments without fail and without any dues. This is to ensure that the debtor is a reliable client and the new bank to which the loan is transferred would not have to face any liabilities by taking this new client.
Other things that you should keep in mind
Those who are new to the balance transfer option often have difficulty determining how much would they end up saving if they go ahead with it. For this, there is the home loan balance transfer calculator. This is an online tool, which would calculate for you the new EMI rates you would be paying and will show the difference between what you were paying previously and what you would be paying henceforth, providing you with the margin of difference that you would be making, which can be quite considerable.
One has to provide some information to the online calculator like the total loan amount, the previous rate of interest and the original tenure of the loan. Then one would have to provide details regarding the outstanding loan amount, the number of EMIs already paid and the lower rate of interest for which the client is currently vying. The calculator will make take all these factors into account and tell you the lower EMI rate that you would be paying each month, and how much you would have saved by the end of the tenure.
However, there are some documents required for a home loan balance transfer. These documents are more or less the same that one had provided the first bank while making the original loan application and they are a photo ID, age and address proof, income proof like Salary Slip of the last six month, bank statement of the last three months, IT returns of the last three financial year. For the transfer application, one would also have to provide the paper and statement of having made at least 12 EMI payments at the previous bank without any delays.