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You have been seeing the lending rates steadily reducing for the last two years. You are worried about paying a higher interest on the home loan, which you have availed 6 years ago. The reduced lending rates by the Reserve Bank of India have an impact on the new loans that banks offer, which will be at a lower interest rate. You are confused, and want to know whether you can transfer your home loan to a new bank or lender.
Several borrowers of these loans are in a similar situation, and want to know why should they opt for a home loan balance transfer. What are the things you should consider?
Being a long tenure loan, home loans are offered at different interest rates by banks, as well as financial institutions. If you have opted for a higher tenure, you have to pay a higher home loan interest. The repayment of the loan is through EMIs, which include a portion of the interest and principal amount of the loan. Initially, you pay more interest than the principal amount.
If you are servicing your home loan at a far higher interest rate, you may consider a home loan balance transfer to another bank, offering it at a competitive interest rate. The transfer process requires you to go through the documentation again, and once it is done, the previous lending bank will be paid the outstanding balance in full. You will in turn start paying the EMIs to the new bank.
With several banks offering home loans at interest rates starting from 6.90 to 7.85 percent, you should opt for transferring your mortgage loans to save money on interest. Nevertheless, you should consider the following aspects before the balance transfer.
Your decision to transfer your home loan balance is to save on the overall interest cost on the loan amount outstanding. This will be helpful if you are paying a higher rate of interest on your loan, and you are now eligible for a far lower rate of interest because of your improved credit profile. Moreover, the lower interest rate that you are going to avail will result in the less pay out of the interest on the home loan, without any influence on your investments.
Nonetheless, you should know that the balance transfer of the existing loan will have a processing fee and other charges as it is considered as the fresh loan application. If possible, you can negotiate with the new lender for the waiving of any charges or for a still lower interest rate based on your credit history.
The balance transfer of a loan is mostly possible only if you have a good credit rating. If you had any inconsistent EMI payments in the past, it would have affected your credit score. With a not good or excellent credit score, the loan balance transfer will be difficult, for the new lending bank will look into your payment history before making a decision.
For anyone who wishes to close the home loan before the tenure can do so without paying any prepayment penalties. According to the latest RBI regulation, housing finance companies and banks should not levy any penalties for the foreclosure of the loan. You need to ensure that you do not have to pay any such penalties.
Before completing the balance transfer process, read the terms and conditions of the new lender carefully to avoid any hidden expenses.
It is not advisable to transfer your balance loan amount if you have a tenure of less than 5 years. At this time, your EMI will have more of the principal amount portion than the interest. By opting for a lower interest rate during this time will not be beneficial, for you will have a processing fee and other charges to bear.
IDFC First Bank can help you with an expert opinion on this. For more information to apply for a home loan or balance transfer, click here.
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