Taking home loans is a good way of fulfilling your dream or need to own a house. It may seem like a long-term liability, but if managed properly, you can save on extra costs in the long run. Navigating home loan balance is one way of doing so, which involves switching between lenders. You might be thinking how.
This article will help you understand the process, pros, and cons of transferring the balance of a home loan, which will benefit you in the future.
Procedure for Transferring the Balance of a Home Loan
Let us look at the process:
1. Examine the terms of your current loan.
Verify your:
- Current interest rate
- Tenure remaining
- Principal balance owed
- Charges for foreclosure or prepayment
2. Examine and contrast lenders
Utilise websites that compare loans to assess:
- Interest rates that are available
- Hidden fees and processing fees
- Criteria for eligibility
3. Determine Your Net Savings
Use an EMI calculator to compare your current EMI with the one offered by the new plan.
| Criteria | Current Lender | New Lender |
| Interest Rate | 9.5% | 8.5% |
| EMI on Rs. 50 Lakhs for 20 yrs | Rs. 46,607 | Rs. 43,391 |
| Approx. Savings | — | Rs. 7.7 Lakhs |
4. Submit a Balance Transfer Application
Usually needed documents:
- Proof of identity and address
- Income records (ITRs and salary slips)
- Documents pertaining to property
- A loan statement and a certificate of outstanding balance
5. Foreclose on the Current Loan
After the application is accepted by the new lender:
- A cheque will be issued in the name of your present lender.
- Your current loan will be terminated.
- Gather the NOC and additional closing paperwork.
6. Put your signature on the contract with the new lender.
- Sign the loan contract.
- Pay EMIs in accordance with the updated terms.
Pros of Home Loan Balance Transfer
Now, let us understand the benefits of transferring the loan balance:
1. Significant long-term savings due to a lower interest rate
Taking advantage of a lower interest rate is the main reason why most borrowers think about transferring their balance. Over time, even a tiny variation of 0.5% to 1% can result in significant savings.
For instance,
- 20-year loan of Rs. 50 lakh
- EMI = Rs. 46,607 at 9.5% interest
- EMI = Rs. 43,391 at 8.5% interest
- Overall savings during the loan period are about Rs. 7–10 lakhs
2. Improved Cash Flow Management with a Reduced Monthly EMI
Your monthly disposable income rises when the interest rate drops because it results in a lower monthly EMI. It facilitates the transfer of funds to:
- Savings for emergencies
- Investments (SIPs, mutual funds)
- Premiums for insurance or education
- Improves long-term financial stability and budgeting.
3. More Affordable Top-Up Loan Options
Most banks provide a top-up loan, which is additional borrowing over the transferred amount, at low interest rates comparable to your home loan when you choose to transfer your balance. Top-up loans are frequently used for:
- Interior design or home remodelling
- Emergencies related to health
- Travel or a wedding
- Investment or business growth
4. Improved Service Experience, Technology, and Loan Features
Modern lenders frequently offer:
- No foreclosure or prepayment fees
- Options for flexible repayment, like step-up or step-down EMIs
- Easy-to-use mobile applications for downloading statements, tracking payments, and submitting service requests
- Quicker grievance resolution and customer service
5. A Chance to Enhance Your Credit Report
Making timely EMI payments can help you improve or restore your CIBIL score, and switching to a lender with better terms can make repayment easier. It is advantageous in the following situations:
- Previous EMIs were missed due to higher rates
- You wish to improve your creditworthiness in the future
Having a strong credit history can qualify you for:
- Reduced interest rates for upcoming loans
- Greater limits on credit cards
- Offers for pre-approved loans
Cons of Home Loan Balance Transfer
There are certain cons associated with it:
1. Extra Expenses Could Lower Net Savings
There are processing and administrative fees associated with a balance transfer, which can reduce your total profit.
Typical expenses consist of:
- Processing fees, which range from 0.25 to 1 percent of the loan amount
- Technical and legal valuation fees
- In certain states, stamp duty
- GST and fees for document handling
2. Greater Total Interest from Longer Tenure
Extending your loan period reduces your EMI, but it frequently results in higher interest payments over time.
Example:
- If you reset to a new 20-year term after paying off five years of a 20-year loan:
- You will make EMI payments for a total of 25 years.
- The benefit of EMI may be outweighed by the additional interest paid.
3. Unsuitable for Loans Nearing Completion
The majority of your payments go towards the principal, and there is very little interest in your EMIs if your home loan is already in the last four to five years.
In these situations:
- A lower interest rate offers very little in the way of savings.
- The move might not be justified by the expense and effort of the transfer.
4. The possibility of rejection or delayed processing
The balance transfer will be handled by a new lender like a new loan application, which entails:
- Verification of credit
- Verification of the property
- Examining documents
You might experience delays or rejection if:
- Your credit score is less than 700.
- Incomplete or contested property documentation
- You constantly default on payment.
5. Time-consuming and Paperwork-Required
Transferring balance involves:
- Resubmitting documents proving identity, income, and property
- Organising with both new and existing lenders
- Handling legal documentation, foreclosure, and disbursement
Bottomline
The conclusion can be drawn that navigating a home loan is a beneficial deal for an individual if utilized at the right time. A new lender may offer a lower interest rate, which eventually lowers the cost in the long run. But it is important not to switch between lenders during the loan completion period, as it will do more bad than good. Various amounts of fees and time taken will increase the expense rather than help you save.
Transferring the home loan amount at the right time will not only contribute to savings but also improve your credit report for the future.