The past few years noted a significant number of home loan buyers transferring their balance to another reason. The lower lending rate is one of the main reasons behind this switch however, there are several other reasons such as no foreclosure fees or better terms and conditions that have also made them take such decisions. If you have also taken a home loan and willing to transfer the balance to the new lender providing you with lower interest rates, then here are the things you consider before making any decision.
The New Lender
Currently, lending institutions like banks or NBFCs are competing with each other in the market. As a result, they readily lend money or promise their customers easy home loan balance transfer. Here, the thing you need to do is a little research about all lenders before making a switch.
Home loan balance transfer fees
Transferring the outstanding balance of the home loan after every rate cut is not a financially wise move. You also need to consider the transfer fees or cost of transfer given by the new lender. Analyse the transfer fees to check whether it worth to switch the balance. You need to pay several fees like processing fees, application fees, etc while transferring the home loan balance. If all these fees are more expensive and there is a very minute difference between current and new EMIs, then switching the lender might not be a good choice.
Terms and Conditions
This is another important thing you need to consider while transferring the balance of your home loan. You must be very careful while choosing a new lender as it becomes bound to their terms and conditions. Therefore, carefully read all the documents stating conditions and make sure that you be benefitted after the transfer.
The Tenure of Home Loan
Very few home loan buyers know that the EMIs payments made during the early years of tenure are focused on paying the total interest, where is principal is served later. This means, if you choose to transfer the home loan balance during the early years of your tenure, you will end up paying less interest. On the other hand, if you switch the lender in the later years of tenure, it will not benefit you.
Lenders consider home loan eligibility of the applicants to provide them with suitable home loan interest rates. Therefore, they vary applicant to applicant. Although transferring the home loan balance to get lower interest rate seems right, you should get the interest differential of at least 0.75% to 1%.
For example, assume you have an outstanding home loan of Rs. 30 lakhs, your current lender charging you an interest rate of 12% and you have 10 years to repay the loan. Then, your EMI will be Rs. 43,041. Now, the new lender is offering you an interest rate of 10.75%, and then your EMIs will become Rs. 40,902. This means you will save Rs. 2,139 every month which you can either invest or use for personal expenses.
A home loan balance transfer can financially beneficial for you when you deciding by considering the above factors.