Home loans are the longest tenure loans and hence you are bound to serve it and spend a major part of your income for the longest time period. Hence, while selecting your home the interest rates charged for the same matters the most. This is also because more than 50% of the home loan EMI consists of the interest amount and when calculating the interest rate for the entire tenure, you will get to know that the interest component is nearly equivalent to the principal component.
However, home loan interest rates are currently going through an all-time low, and this is probably the best time to grab a suitable home loan deal for you. Many home loan buyers who have purchased their home through a home loan in the past may think that they did a costly deal as they got their home loan approved at much higher rates than now. But, here is good news for them also, they are still eligible to grab the low-interest rate deals by going through a balance transfer of their existing home loan.
The current interest rates on home loans start @ 6.95% with the lowest EMI of ₹ 655 per lakh. Knowing this will surely be tempting for an existing home loan borrower and being one among them, you will definitely want to transfer your loan to the newer rates.
Ideally, the benefit of a home loan balance transfer can mostly be availed in the initial 4 to 5 years of loan as the EMI for a home loan consists of the highest interest component in the initial years only.
But before you initiate the balance transfer, analysis of all savings and costs associated with the transfer of loan is a must.
Checking the overall cost of transfer and analyzing if it is worth it or not?
Transferring your home loan comes with several costs, including processing fees, application fees, prepayment charges, and transfer fees in case of some lenders. So, before you make a decision it’s important to do the calculation and analyse how much you can save after transferring your loan. The lower interest rate may seem tempting and attractive but it’s important to know whether it’s beneficial for you or not based on money saved. Calculate the total cost of borrowing in both cases including the prepayment and new processing charges. Go for the transfer only if you are saving a decent amount even after paying all the charges.
Eligibility Criteria for a Home Loan Balance Transfer
- To be eligible for a home loan balance transfer you must be having an existing home loan from another lender.
- Lenders may also require that an applicant should have served a minimum of 12 EMI’s on existing loan/ server the lock-in period before opting for a balance transfer. *This condition varies from lender to lender.
- The applicant should have not defaulted in payment of EMI for the existing loans.
- Balance transfer of home loan for a property whose possession has been handed over but registration has not been done is not possible with most of the lenders.
Steps to follow to transfer your loan from one bank to another
- Check your current rate and calculate your total borrowing cost as per it.
- Calculate the estimated cost on account of the pre-closure.
- Select a bank/lender by comparing for a lower interest rate and favorable terms for you.
- Get the list of documents deposited with your existing bank (in case this is not available with you already) and a foreclosure letter along with a NOC certificate from the existing bank.
- Apply for a new home loan with a different bank.
- Get the approval letter and the new loan agreement signed if you agree with the terms.
- Get disbursement from the new bank by cheque/ demand draft in favor of the existing bank and also deposit it to your existing lender.
- Get the property documents from the old lender and submit it to the new bank.
Home Loan EMI Calculator is a great tool and can help you in your decision-making. So, before you come to any decision it’s important to calculate monthly interest, Emis both the Scenarios of the old and new lender.