What is a Home loan balance transfer? Tips And Tricks

Getting a home loan is a big step, but sometimes the interest rates or terms you initially agreed to might not be the best available. If you find a better deal with lower interest rates or more flexible repayment options from another bank, you don’t have to stick with your current lender. This is where a home loan balance transfer comes in — it lets you move your existing loan to a new bank, helping you save money and enjoy better terms.

In this blog, we’ll explain how home loan balance transfer works, its benefits, and everything you need to know before making the switch.

What is a Home Loan Balance Transfer?

A Home Loan Balance Transfer involves shifting your existing home loan from one lender to another, typically to benefit from lower interest rates, better terms, or enhanced services. The new lender pays off your outstanding loan amount to the current lender, and you commence repayments under the new terms.

Key Benefits of Home Loan Balance Transfer

1. Reduced Interest Rates

Switching to a lender offering lower interest rates can lead to significant savings over the loan tenure.

2. Lower EMI Payments

A reduced interest rate directly translates to decreased monthly EMIs, easing your financial burden.

3. Extended Loan Tenure

Some lenders provide the option to extend your loan tenure, offering more flexibility in repayments.

4. Improved Customer Service

Transferring to a lender with superior customer service can enhance your overall loan experience.

5. Zero Foreclosure Charges on Floating Rates

As per RBI guidelines, lenders cannot levy foreclosure charges on floating-rate home loans 

6. Top-Up Loan Facility

Many lenders offer additional funds over your existing loan amount, known as top-up loans, which can be used for various purposes.

 Eligibility Criteria for Home Loan Balance Transfer

•      • Loan Tenure Completed: Typically, lenders require that you have completed a minimum of 12 months of your existing loan tenure.

•      • Good Credit Score: A CIBIL score of 700 or above is generally preferred

•      • Stable Income Source: Proof of consistent income ensures lenders of your repayment capacity

•      • Clear Repayment History: No defaults or missed payments on your existing loan.

 Documents Required for Home Loan Balance Transfer

From Existing Lender:

•      • Loan Statement: Details of the loan amount, tenure, and repayment history.

•      • No Objection Certificate (NOC): A document stating that the lender has no objections to the loan transfer.

•      • Foreclosure Letter: Indicates the outstanding loan amount to be paid by the new lender.

•      • Property Documents: Original documents submitted during the initial loan process.

For New Lender:

•      • Identity Proof: Aadhaar Card, PAN Card, Passport, etc

•      • Address Proof: Utility bills, rental agreement, etc.

•      • Income Proof:

  •      ⇒ Salaried Individuals: Latest salary slips, Form 16.

  •      ⇒ Self-Employed: ITR filings, business proof, bank statements.

• Property Documents: Sale deed, property tax receipts, etc.

Step-by-Step Process of Home Loan Balance Transfer

1. Research and Compare Lenders: Evaluate interest rates, processing fees, and customer reviews.
   
   

2. Check Eligibility: Ensure you meet the criteria set by the new lender.
   
   

3. Apply for Balance Transfer: Submit the required documents to the new lender
   
   

4. Approval and Sanction: Upon verification, the new lender approves the loan.
   
   

5. Foreclosure of Existing Loan: The new lender pays off the outstanding amount to the current lender.
   
   

6. Execution of New Loan Agreement: Sign the agreement with the new lender and commence repayments.

Charges Associated with Home Loan Balance Transfer

•      • Processing Fee: Typically ranges from 0.5% to 1% of the loan amount.

•      • Foreclosure Charges: Nil for floating-rate loans; up to 3% for fixed-rate loans.

•      • Legal and Technical Charges: Fees for property valuation and legal verification.

When Should You Consider a Home Loan Balance Transfer?

•      • Interest Rate Difference: When the new lender offers at least a 0.5% lower interest rate.

•      • Long Remaining Tenure: If a significant portion of your loan tenure is pending, maximizing savings.

•      • Improved Credit Score: A better score can fetch more favorable terms.

•      • Need for Additional Funds: To avail of a top-up loan facility.

 Conclusion

A home loan balance transfer can be a strategic move to reduce your financial burden and avail better services. However, it's essential to assess the associated costs and benefits thoroughly. Consult with financial advisors or use online calculators to make an informed decision.

FAQs

1. What is a home loan balance transfer?

A home loan balance transfer is the process of moving your existing home loan from one bank or financial institution to another to benefit from better interest rates, lower EMIs, or improved loan terms.

2. Can I transfer a home loan taken jointly?

Yes. Joint home loans can be transferred as long as the new lender approves the application and all co-applicants agree to the terms.

3. Can I avail tax benefits after transferring my loan?

Yes, tax benefits under Sections 80C and 24(b) continue post-transfer.

4. Will my credit score be affected by a balance transfer?

A balance transfer doesn't negatively impact your credit score. However, multiple loan inquiries in a short span can.