Amit has availed home loan at 10% and there are 15 years remaining to repay the loan wherein 20 lakhs is the unpaid principal amount. If he decided to switch the loan to 9%, then in a year he would be able to save ₹14,484 and in 15 years, he would be able to save ₹2,17,260.
Sumit has also availed a home loan at 10% and there are 15 years remaining to repay the loan wherein 25 lakhs is the unpaid principal amount. If he decides to switch the loan to 9%, then in a year, he would be able to save ₹18,336 and he would be able to save ₹275040.
If, we evaluate both the cases, it is precisely justifiable that home loan balance transfer is more advisable for Sumit as he is having a more outstanding balance and the switch can earn more savings for him. The home loan balance transfer is a time and cost consuming process, hence the person should take such decisions very carefully. The proper research regarding the entire process of home loan transfer, the documentation, liaison process, etc. are to be done properly. If the person is able to properly strategize, then he or she can save an enormous amount of money and funds by using the home loan balance transfer option.
Balance transfer of a home loan is an effective tool to reduce the burden of EMIs. Balance transfer of a home loan takes place, when the total unpaid principal loan amount is transferred from one lender to another lender such as banks, financial institutes, NBFCs etc. at a lower interest rate.
However, there are certain factors that have to be kept in mind while you are making the balance transfer decision that is- Total amount of unpaid loan, rate of interest offered and remaining duration to pay off the loan. Also, the balance transfer decision should be taken once you carry out a proper analysis. One should always check out all the available options in the market, i.e the lenders who are offering you home loan balance transfer. One should choose the deal that is most appropriate for them, and the same can be helpful as a cost & time-saving option.
Benefits of Home Loan Balance Transfer
- Transferring your home loan to from one lender to another lender can lower your monthly payable EMI.
- When you go for a home loan balance transfer it reduces the interest rate for your home loan so you can save a lot.
- Your credit score may increase by transferring your home loan
- When you go for a home loan balance transfer you can also negotiate with your new lender, and can choose accordingly.
- It’s not only about the interest rate, one can even opt for a home loan balance transfer if he/she is not satisfied with the services of the existing lender.
- One can also reduce or increase the tenure period of their home loan with a new lender when going for a home loan balance transfer.
A home loan balance transfer is a viable tool because the tenure of the home loan is high and thus, if the borrower comes across any lender that can offer the loan at the considerably low rate of interest, then he or she can reduce the home loan burden to a greater extent. The person, who intends to go for the balance transfer option, should necessarily carry out the cost and benefit analysis before opting for any option. One should calculate the internal rate of return (IRR) from the transfer as well. However, if the outstanding amount that has to be paid is too less, then it is not advisable for the person to opt for the home loan balance transfer because there is a possibility that a person may end up paying similar or even higher amount compared to the current lender. Those ways it is a loss-incurring business for the person. At the same time, if the person is in the early stage of the loan, where the outstanding amount of loan is high, and the person is getting a better deal from the new lender, then the person should certainly opt for the new deal. Such deals can give the person a relatively lower rate of interest that has to be paid for the loan. This can reduce the burden of the loan to a person and the cost savings can be done.
Once, the rate of interest has been lowered, it automatically helps to lower the monthly instalments that have to be paid. This way, the financial budget of the person can be maintained in a better manner and the repayment of the loan can be easier without hampering the monthly budget of the person. With the help of home loan balance transfer, one can even repay the loan in relatively decreased tenure if he/she is able to manage & execute the proper financial planning. Also, the terms & conditions are to be checked properly.
Explore the home loan balance transfer option after exploring the suitable alternative deals available in the market. A careful and appropriate decision can lead to getting advantageous fruits for you and you can enjoy the benefits of the same for the longer run.
(Updated – 09-05-2019)