Managing Your Debt: Considerations for Home Loan Balance Transfer

Borrowers repaying a home loan can transfer the remaining balance on their loans at any time to another lender. This is known as a home loan balance transfer. In the majority of cases, borrowers choose to go with a home loan transfer to benefit from an interest rate cut. However, in many cases, the decision to go for a transfer is also motivated by the possibility of better service or reduced interest rates. 

The home loan balance transfer process is fairly straightforward. You apply for a balance transfer to a new lender willing to refinance your loan on better loan terms and conditions. If the new lender accepts your request, they will repay your current lender and help you close your loan account with them. Once your loan account with your old lender is closed, the home loan transfer procedure is considered complete and thereafter, you pay loan EMIs to your new lender. 

A home loan balance transfer can prove to be highly beneficial. However, it does so only when one decides to avail of the home loan balance transfer facility after taking into account various important considerations. In the next section of this article, we discuss these key considerations in detail. 

Home Loan Balance Transfers: Key Considerations

Fees and Charges 

Currently, individuals on floating interest rates can prepay or foreclose their home loan at any time without paying a penalty. For borrowers on fixed interest rates, the prepayment or foreclosure penalty can stretch up to 2% of the amount being refinanced. Further, any new lender that you apply to will charge you a home loan balance transfer fee, which usually ranges from 0.25% to 2% of the loan amount. The foreclosure fee along with the home loan balance transfer charges can turn out to be a hefty amount. In such cases, a balance transfer may not be a beneficial option, especially if there is no difference between the old and new home loan interest rates. 

Borrowers can benefit greatly from the home loan balance transfer calculator, which is a free-to-use online tool that lets home loan applicants calculate the change in their EMIs as well as the total cost of borrowing the loan if they decide to opt for a home loan balance transfer. A balance transfer can help you do a cost-benefit analysis and decide if a balance transfer would indeed be the right choice for you. 

Always Negotiate with Your Current Lender First 

It should be clear to you by now that home loan balance transfers attract a fee, which is invariably a hefty amount. Therefore, one of the best ways to avoid paying the home loan balance transfer fee and other charges is to negotiate for a low rate of interest and other better loan terms and conditions. Lenders do not also want to lose out on clients and business. Therefore, if you have been an ideal client with a clean repayment track record and creditworthy behaviour, it is quite likely that your current lender will accept your request to be switched to a lower interest rate. 

Make Sure You Have an Excellent Credit Rating 

If you are considering availing yourself of a home loan balance transfer, make sure you have an excellent credit rating. An excellent credit score, i.e. in the range of 750 to 900, indicates excellent creditworthiness. Such individuals can get approved for a balance transfer quite quickly and are extended loans on the most beneficial loan terms and conditions. 

Therefore, before applying for a balance transfer, check your credit rating online. Apply for a balance transfer only if you have a good cibil score. If it is below 750, improve your score first and then make a home loan balance transfer request. 

Final Words

Other than the key considerations mentioned above, borrowers can also make it a point to read the terms and conditions of their home loan balance transfer agreement carefully. More importantly, if you are planning to balance transfer your home loan, make sure to never opt for this facility if you are nearing the end of your loan tenor. A home loan balance transfer makes sense and proves beneficial when a considerable portion of one’s interest is yet to be repaid.