The primary parameters that should guide your relationship with a financial institute are transparency and profitability. So, what should you do when you see that your lender has started to increase the home loan interest rate? You might want to consider breaking the bond and finding a new lender. You have the right to try and find a loan that charges the lowest interest rate while giving you the best service. If you have received a better offer, you should not hesitate to make a home loan balance transfer. But you should not rush either. Here’s a closer look at whether you should consider getting a home loan transfer.
When is a Home Loan Balance Transfer Required?
This may be required under a few circumstances. For example, perhaps you think your lender is charging a higher rate of interest than the market standard. Or maybe you have found a lender that offers to lend you money at a much lower rate of interest. In both these cases, you could consider a home loan transfer.
Suppose you had borrowed Rs.50 lakh from ‘A’ at an interest rate of 8.5% for a tenor of 15 years. The equated monthly installment (EMI) payable by you was Rs.49,237. The total amount of interest to be paid was Rs 38,62,656. Now, after you have paid the EMIs for three years, the interest goes up 30 basis points to become 8.8%. The total amount of interest due goes up by nearly Rs.1 lakh. This is the kind of situation where you may want to consider transferring the home loan to a different lender.
How does a loan transfer work?
You need to find a lender that offers you the lowest home loan interest rate. The new lender pays the full outstanding amount to the old lender. Now, you owe the money to the new lender.
People have general apprehensions about loan transfers. But you can see how simple the whole thing is.
Of course, as a borrower, you must do the due diligence too. Be careful and do the math if you really wish to save money through a home loan balance transfer. There some essential practices which you should observe in order to make the most of the process.
The key imperatives while opting for a home loan transfer
● Ensure that the interest rate offered by the prospective lender is lower than that of your current lender by at least 25 basis points. If the difference of interest rate is less than 25 basis points then it may not be worth the trouble. For instance, if you are currently paying 8.5% interest it makes sense to go for a loan transfer only when the new interest rate is less than 8.25%.
● Remember, there will be fees involved when you transfer the loan. Factor this into your calculations too. Take into account the processing charges entailed by the transfer while computing the amount you save.
● Use a home loan transfer calculator to find out the EMI and your gross savings. Enter the following information into the calculator:
o the outstanding amount on your current loan,
o the current rate of interest, and
o the rate of interest offered by the new lender
This will show you the costs involved.
● Check if your current lender has charges related to foreclosure or part prepayment. Work this into your calculations as well.
● Read the documents very carefully to discern any charges or obligations hidden in the fine print before you take a decision.
Non-banking financial companies bring you pre-approved offers for personal loan, home loan, top-up loan, EMI finance on different products, and other financial services. This simplifies the financing process and helps you save on time. You can check the preapproved loan offers by just entering a few basic details. If the calculations work out, it may be time to switch lenders and enjoy more affordable EMIs.