The monetary policy committee of the Reserve Bank of India (RBI) announced a hike in the repo rate by 25 basis points to 6.25%. This increase in the repo rate by the Reserve Bank of India has come after a span of four and a half years. The last time repo rate was raised was in January 2014, before Prime Minister Narendra Modi-led BJP government came to power. The recent change in repo rate has led to an increase in home loan interest rates as well, which is a major concern for the home loan borrowers as they are witnessing a rise in the cost of home loan EMIs.
The increasing home loan interest rates are looking to be a burden for the existing home loan borrowers. Any increase in the home loan interest rates will mean a higher interest payout for the home loan borrower. Most individuals who feel the interest is too high or the EMI is too much to afford can make use of the home loan balance transfer option and switch to a different lender. If you feel that the recent change in repo rate will increase your home loan EMI burden, then you can opt for a home loan balance transfer to avail lower interest rates available in the market, thus making the EMIs affordable. But, let us first understand what exactly home loan balance transfer is all about.
What is Home Loan Balance Transfer?
Home Loan Transfer is offered by most of the banks and financial institutions which help in transferring your current home loan balance from existing lender to new lender. Transferring your home loan to a new lender helps you to get exclusive offers and lower interest rates which reduce your home loan obligation as well. The home loan transfer facility helps you in avoiding higher interest rate of your home loan provider and provides you the facility to switch to another lender who offers lower rate of interest.
Features of Home Loan Balance Transfer
With Home Loan Balance Transfer, you get the facility of transferring your outstanding balance with your existing home loan provider to another bank / lender who offers lower rate of interest. Most of the banks and financial institutions treat home loan balance transfer application in the same way as a home loan application. While making home loan transfer, borrower is liable to pay processing fees to the new lender which usually is around 1% of the loan transfer amount (varies from one bank to another). But, you can avail home loan balance transfer facility after a specific time period which will be mentioned in your home loan agreement. So, once the home loan transfer process is complete, you will owe the transferred loan amount with charges to the new lender instead of the previous one.
Home Loan Balance Transfer Process
For a lower rate of interest and other benefits, customers tend to opt for a home loan transfer for the outstanding amount to another bank or financial institution. The new lender will pay your existing lender the outstanding amount due on your home loan after which you will owe the outstanding amount to the new lender. To successfully transfer your home loan, you will need to carry out the steps mentioned below:
- Make a home loan application to the new lender: A fresh home loan application should be made to your new home loan lender. Some home loan lenders also offer online application facilities to complete this process.
- Submit your Documents: Documents such as photograph, bank statements and photocopies of identity and address proof, income documents are required. Your bank might require the following documents as well:
- A letter on the letterhead of your existing bank or financial institution stating the list of property documents held by them
- Latest outstanding balance letter from the lending institution
- Photocopy of property documents
- Foreclosure of existing loan: When you want to make a home loan balance transfer, you need to carry out foreclosure formalities for the existing home loan. After the foreclosure formalities the new lending bank or financial institution may make a payment of the outstanding amount to the previous lender to release the original documents.
- New Home Loan Agreement: After all the formalities are carried out successfully, a new home loan agreement will be made between you and the new lending bank or financial institution.
Important Things to Consider before Home Loan Balance Transfer
Following are the top 5 things that you need to consider before you opt for a home loan balance transfer to make sure you get the best deal.
- Check the market for affordable interest rates: Before you opt for a home loan balance transfer to another lender, you should check the interest rates offered by various banks and financial institutions in the market to get the best deal.
- Ensure that you switch early in the tenure: If you opt to transfer your home loan later in your home loan tenure than it would not be real beneficial as you would have already made most of your interest led EMI payments. So, if you are in early half of your home loan and the recent repo rate increase has made your home loan EMI out of your budget, then you can benefit more by opting for a home loan balance transfer.
- Check how much transfer of loan will cost you: Transferring your home loan can attract several costs like processing fee and application fee. You should calculate all the charges that you are required to incur to complete your home loan balance transfer. Also, you should check if the total costs involved in your home loan balance transfer are less than the interest amount that you will save by making the transfer.
- Read the Terms and Conditions Carefully: It is crucial to be aware that once you transfer your home loan to a new lender, you will be bound to their terms and conditions. So, it is important to be aware of all the terms and conditions of the new lending bank or financial institution.
What should home loan borrowers do?
As home loan interest rates are rising after the recent change in repo rate, home loan borrowers can look for other banks and financial institutions offering lower rate of interest on home loan. If you have availed home loan recently, then you should wait till your reset date. Once you cross your reset date, you should compare the lending rate with other banks and financial institutions to avail the best interest rate on your home loan. You should also calculate the potential savings by transferring your home loan to help you with your calculations.