Have a home loan? Did you know you can transfer it?

With the country's central bank having raised interest rates by 0.25 per cent in June, financial lenders are expected to push up home loan rates. Even before the RBI's move, some banks pre-empted the rate hike by hiking their loan rates. For the average home loan borrower like you, higher interest rates mean higher EMIs. With home loans already eating into quite a portion of your monthly budget, quick fixes are required to control EMIs. Consider this: the EMI will increase by about Rs 800-1000 for a Rs 50 lakh home loan taken for 20 years with an interest rate of 8.5% everytime rates rise by 0.25%. If the rates rise by 1%, the increased burden on EMI could be about Rs 3,200-4,000. Did you know you can do a home loan balance transfer to go to a bank that offers a lower interest rate than your existing lender? Yes, balance transfers can actually help you save interest cost and save your monthly budget. Read on.

Why transfer

You have switched jobs for a better salary. A home loan balance transfer is a switch from one bank to another for a lower interest rate. Due to the difference in interest rates being offered on home loan, many look to avenues to get a reduced rate that can lower their monthly EMI expense. A balance transfer is one of the most viable solutions.

Some of the most popular reasons why people switch their loans are

* Competitive rates - If you are servicing a home loan at a higher interest rate, you have the right to choose a cheaper rate especially if your bank is not lowering it.

* Extended tenure - When you want to extend the repayment tenure to reduce your monthly outgo, but your existing home loan lender does not allow it, you may wish to shift the loan to an institution, like IDFC FIRST Bank, which is ready to offer the same.

* Improved services: If you are unsatisfied with the way your home loan lender has been servicing your account, maybe it is time you reconsider your decision.

How balance transfer works

A home loan balance transfer balance transfer procedure is very similar to availing a new home loan. There are steps including documentation, verification, field investigation, legal and technical evaluation. Also, you would need a Non-Objection Certificate (NOC) from the existing home loan provider. This should take a few days. Do note that all the original documents are collected from the existing bank and submitted to the new home loan provider.

Suppose, you have availed a home loan of Rs 50 lakh from a financial institution. After repaying it for 5 years, you plan to transfer the home loan to another institution for a lower You can keep the new loan tenure at 15 years (20 years minus 5 years you have serviced) or you can go for a 20 years fresh tenure. Needless to say, that in both the cases, if your home loan interest is lower by 0.5%, then you will end up paying about lower EMI. Total interest outflow will go down by about Rs 4 lakh in case you take the new loan for 15 years at the new lender, after having serviced the loan for 5 years at the old lender.

To know how much you will save, use a home loan balance transfer calculator to find out. Use the fresh loan amount i.e. the home loan outstanding balance, new tenure and the new (cheaper) interest rate to find out the new EMI. Click Here to know more

Things to remember

One should always opt for a home loan balance transfer in the early stages of the loan tenure. This is because, in the initial years of the home loan tenure, interest forms a major component of the EMI. The principal component is relatively lower. So, if you make a switch during the initial years, the interest component would reduce substantially due to the difference in rates. This is sure to provide you with a cost benefit. Again, we implore you to use a home loan balance transfer calculator to know the exact figures.

However, if you do the home loan balance transfer in the later stages, the cost benefit is a lot less. This is because a large part of the interest component has already been repaid.

Also, do take into account the prepayment and repayment charges. If your loan agreement has such charge, it could happen that the existing lender could end up charging a sizeable amount, resulting in negligible savings when moving the loan to a new bank. Currently, there are no charges levied by IDFC FIRST Bank in case of any part payment / fore-closure made towards floating rate IDFC FIRST Bank home loans.

You should also look at the new bank's processing fees and schedule of charges. Ensure that there are no hidden charges other than stated in the schedule of charges. This will ensure that you are actually getting a great deal in terms lower interest costs and lower EMI.


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