Reduced Interest Rate!

Home loan interest rates are very low currently, after the Reserve Bank of India’s (RBI) has reduced the interest rate by 115 basis points which have brought the repo rate down to 4%, since the COVID-19-induced lockdown.

The repo rate is the external benchmark for the banks and hence any cut in repo rate will be passed on to borrowers entirely. And as per the new regime, all new retail floating-rate loans sanctioned by banks are linked to external benchmarks. So, if your loan is still linked to older regimes like MCLR and Base Rate then you have all the reasons to switch your loan to the lender where you are getting benefits from the new regime. 

Well, the switch can be either internal where you just switch your regime or plan whereas in an external switch you change your lender to get better rates and terms. 

But before you and start looking for policies that offer lower rates and lucrative benefits it is important for you to carefully read the terms and conditions of your current loan/lender. This is suggested because certain banks do not allow their customers to transfer their loans to another lender. If this is your case you do not have an option other than negotiating with them. To be on the safer side it is important to check for a balance transfer facility before you finalize your lander and take a loan. 

When should I switch lenders?

Every penny counts! Even a 25-35 basis points difference can save your money. This is because home loans are the longest tenure loan and even difference in points for the interest rate and contribute to a huge saving during this long tenure.

Let’s say your current home loan is at @8% per annum for a tenure period of 15 years, and you have already served the loan for 3 years. You get to know of another bank that is offering the same loan @7.5% interest rate. So, if you avail of a balance transfer facility you will have to pay less on the interest which can save a lot of money. However, there is always an option to negotiate with your existing bank before taking the final call for a switch. The benefit of negotiating with your existing lender is – If your bank agrees to match up with the new offer (which you have) it will save your time and effort which the new loan initiation will take.

Features you get through Home Loan Balance Transfer

  • A home loan balance transfer is the process of transferring your existing home loan from one bank to another in terms to get better terms and rates.
  • It’s basically refinancing your home loan, which involves the same process as the process involved in availing a new home loan.
  • Home loan balance transfers generally come at a lower processing fee which can be as low as 1%, this fee is payable to the new bank. The processing fee here is important to be considered as this can overshadow the savings you are thinking of getting if you transferred the loan.
  • With a Home loan refinance, your home loan account will be transferred to a new lender, which means all your further payments towards the loan will be made to the new lender who has taken over your home loan.
  • Certain banks have clauses for a home loan balance transfer, which can restrict the transfer for a certain time. Generally, all the banks have a certain time as a lock-in period, and during this period one cannot go for a refinancing option. so, before you decide on your home loan lender and sign the loan agreement, it’s important to check for the lock-in period.

Checking the overall cost of transferring and analysing whether it is worth or not?

Well, you need to be extra conscious while deciding to switch your loan. However, 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. 

Make sure you have all the Documents

The home loan balance trance requires you to submit many documents which include documents for KYC, property documents, bank statements, income proofs, original documents with the existing lender and previous loan account statement and NOC certificate from your previous lender. So, if you are going for a home loan balance transfer make sure you have all these documents ready in order to enjoy a hassle-free balance transfer process. 

After you are done with arranging all the documents and applying for a balance transfer, it is very important to understand your new home loan terms and policies carefully. Make sure you read the fine print to ensure that you are not simply looking at the low-interest rate and overlooking clauses before you sign the new agreement.